<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1996
REGISTRATION NO. 333[ ]
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
PIONEER COMMERCIAL FUNDING CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 6162 13-3763437
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
6660 RESEDA BLVD. RESEDA, CALIFORNIA 91335
(818) 776-0590
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND
PRINCIPAL PLACE OF BUSINESS AND TELEPHONE NUMBER)
GLENDA KLEIN
SR. VICE PRESIDENT
PIONEER COMMERCIAL FUNDING CORP.
6660 RESEDA BLVD. RESEDA, CALIFORNIA 91335
(818) 776-0590
(NAME, ADDRESS AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
----------
COPIES TO:
STEVEN D. DREYER, ESQ. IRWIN M. ROSENTHAL, ESQ.
HALL DICKLER KENT FRIEDMAN & WOOD, LLP RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
909 THIRD AVENUE 30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10112
(212)339-5400 (212) 698-7700
----------
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of the registration statement.
----------
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
<PAGE>
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
===============================================================================================
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
BE REGISTERED REGISTERED MAXIMUM MAXIMUM REGISTRATION
OFFERING AGGREGATE FEE
PRICE PER OFFERING
SECURITY(1) PRICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one share of 4,312,500 (2) $1.63 $7,029,375 $2,130.12
Common Stock , $.01 par value (the
"Common Stock") and one Five Year
Redeemable Class A Warrant (the "Class
A Warrants")
- -----------------------------------------------------------------------------------------------
Common Stock 4,312,500 (3) n/a --- ---
- -----------------------------------------------------------------------------------------------
Class A Warrants 4,312,500 (4) n/a --- ---
- -----------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise 4,312,500 (5) 1.63 7,029,375 2,130.12
of Class A Warrants
- -----------------------------------------------------------------------------------------------
Representative's Warrants 375,000 .001 375 .11
- -----------------------------------------------------------------------------------------------
Units Issuable Upon Exercise of 375,000 1.96 (6) 735,000 222.73
Representative's Warrants
- -----------------------------------------------------------------------------------------------
Common Stock Components of Units 375,000 (5) --- --- ---
Issuable Upon Exercise of
Representative's Warrants
- -----------------------------------------------------------------------------------------------
Class A Warrant Components of Units 375,000 --- --- ---
Issuable Upon Exercise of
Representative's Warrants
- -----------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise of 375,000 (5) 1.63 611,250 185.23
Class A Warrant Components of Units ---------
Issuable Upon Exercise of
Representative's Warrants
- -----------------------------------------------------------------------------------------------
Totals --- --- $15,405,375 $4,668.31
=========
===============================================================================================
</TABLE>
(1) Estimated, pursuant to Rule 457(c), solely for purposes of the calculation
of the fee due hereunder, on the basis of the maximum offering price is based
upon the last sale price of the Common Stock on December 20, 1996.
(2) Includes 562,500 Units which the Underwriters have the option to purchase to
cover over-allotments, if any.
(3) Includes 562,500 shares of Common Stock issuable as components of 562,500
Units which the Underwriters have the option to purchase to cover
over-allotments, if any.
<PAGE>
<PAGE>
(4) Includes 562,500 Class A Warrants issuable as components of 562,500 Units
which the Underwriters have the option to purchase to cover over-allotments, if
any.
(5) Pursuant to Rule 416, there are also being registered such additional shares
of Common Stock as may be issued pursuant to the anti-dilution provisions of the
Class A Warrants, the Representative's Warrants and the Class A Warrant
components of the Units issuable upon exercise of the Representative's Warrants.
(6) Based upon 120% of the maximum offering price of the Units.
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
<PAGE>
[LEFT MARGIN OF FRONT OUTSIDE COVER OF PROSPECTUS]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 27, 1996
3,750,000 UNITS
[LOGO]
PIONEER COMMERCIAL FUNDING CORP.
EACH CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANT
-----------------
Each unit ("Unit") of Pioneer Commercial Funding Corp., a New York
corporation (the "Company") consists of one share of the Company's Common Stock,
par value, $.01 per share (the "Common Stock") and one Redeemable Class A
Warrant (the "Class A Warrants"). The components of the Units will be separately
transferrable immediately. Each Class A Warrant entitles the holder to purchase
one share of Common Stock, at an exercise price equal to the Market Price of the
Common Stock, as hereinafter defined. The Class A Warrants are exercisable at
any time during the five year period commencing on the date of this Prospectus
(the "Exercise Period"). The Class A Warrants are subject to redemption by the
Company at any time during the four year period commencing on the first
anniversary of the date of this Prospectus and continuing through the end of the
Exercise Period, for $.10 per Class A Warrant, upon 30 days' prior written
notice, if the closing sale price of the Common Stock as quoted on the principal
market on which it shall then be trading shall be not less than 140% of the
Market Price per share during any period of 30 consecutive trading days ending
on the third day preceding the date of such notice; and further provided that
the Class A Warrant holders may exercise their Class A Warrants at any time
prior to the redemption date specified in such notice. See "Description of
Securities -- Class A Warrants."
The offering of Units being made hereby (the "Offering") involves a
high degree of risk. SEE "RISK FACTORS" BEGINNING ON PAGE 10.
The Common Stock is quoted on the Nasdaq SmallCap Marketsm under the
symbol "PCFC." The closing sale price of the Common Stock on such market on
December 20, 1996 was $1.63. Prior to this Offering, there has been no market
for the Units or the Class A Warrants. Although the Company has made
applications for inclusion of the Units and Class A Warrants on the Nasdaq
SmallCap Market, and for listing of the Units, Common Stock and Class A Warrants
on the Boston Stock Exchange and the Pacific Stock Exchange, there can be no
assurance that any of such applications will be granted, or if any of such
applications is granted, that an active and liquid market in such securities
will develop, or if such a market does develop, that it will be sustained. See
"Market for Common Equity and Related Shareholder Matters;" and "Description of
Securities - Nasdaq SmallCap Market Listing; Boston Stock Exchange and Pacific
Stock Exchange Listing Applications."
----------------
<PAGE>
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
<TABLE>
<CAPTION>
==============================================================================================
Price to Public Underwriting Proceeds to
Discounts and Company (2)
Commissions (1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit $ $ $
- ----------------------------------------------------------------------------------------------
Total (3) $ $ $
==============================================================================================
</TABLE>
(1) Does not include (a) warrants to be issued to LT Lawrence & Co., Inc. (the
"Representative") to purchase 375,000 Units, at an exercise price per Unit equal
to 120% of the public offering price per Unit (the "Representative's Warrants")
or (b) a non-accountable expense allowance payable to the Representative equal
to 3% of the gross proceeds of the Offering. The Representative's Warrants are
exercisable for a period of four years commencing one year from the date of this
Prospectus. The Company has agreed to indemnify the Underwriters against, or
contribute to losses arising from, certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses, including the Representative's
non-accountable expense allowance, of $ in the aggregate (or
$ if the Underwriters' over-allotment option is exercised in full)
payable by the Company. See "Underwriting."
(3) The Company has granted the Underwriters an option exercisable for a period
of 45 days from the date of this Prospectus to purchase up to an additional
562,500 Units, upon the same terms and conditions as the Units being offered
hereby, solely to cover over-allotments, if any. If the Underwriters exercise
the over-allotment option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------------
These Units are being offered by the several Underwriters named
herein on a firm commitment basis, subject to prior sale, when, as and if
delivered to and accepted by them and subject to certain conditions. It is
expected that delivery of the certificates representing the components of the
Units will be made against payment therefor at the offices of the LT Lawrence &
Co., Inc., 3 New York Plaza, New York, New York 10004, or through the facilities
of the Depositary Trust Company, on or about , 1997.
<PAGE>
<PAGE>
LT LAWRENCE & CO., INC.
-----------------
______, 1997
<PAGE>
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
The Company intends to furnish its shareholders with annual reports
containing audited financial statements of the Company, after the end of each
fiscal year, and to make available such other periodic reports as the Company
may deem appropriate, or as may be required by law. The Company's accounting
year ends on March 31.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON
STOCK AND CLASS A WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP
MARKETSM, THE BOSTON STOCK EXCHANGE, THE PACIFIC STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ SMALLCAP MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
----------
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
The discussions contained herein assume that the Company's
Certificate of Incorporation has been amended to increase and change the
Company's authorized capital stock from 5,000,000 shares of Common Stock to
25,000,000 shares, of which 20,000,000 shall be Common Stock, and 5,000,000
shall be preferred stock, par value $.01 per share. See "Description of
Securities. A Special Meeting of Shareholders will be held on January 15, 1997
to consider and vote upon a proposal to authorize such action.
The Company, formerly known as PCF Acquisition Corp. ("PCF"), is a
New York corporation organized in March 1994 which merged with Pioneer
Commercial Funding Corp. ("Pioneer"), a New York corporation in November 1994.
In connection with such merger (the "Merger"), PCF, as the surviving entity in
the Merger, changed its name to Pioneer Commercial Funding Corp. and became the
successor to Pioneer's business as a mortgage warehouse lender.
See "The Merger."
Unless otherwise indicated, (i) all references to "Pioneer" shall
mean the corporation which, prior to the Merger, was known as Pioneer Commercial
Funding Corp., (ii) all references to the "Company" shall mean the post-Merger
New York corporation now known as Pioneer Commercial Funding Corp. and (iii) all
references to "PCF" shall mean the Company, as it was constituted and named
prior to such Merger. All information in this Prospectus assumes no exercise of
the Underwriters' over-allotment option or the Representative's Warrants. See
"Underwriting."
THE COMPANY
The Company is a specialized niche financial services company
currently engaged in (i) residential mortgage warehouse lending and (ii)
origination of consumer automobile loan and lease financings through a recently
acquired 50% interest in Trans Lending Corporation ("Trans Lending"). Trans
Lending presently represents AVCO Financial Services, Inc. ("AVCO"), ACC
Consumer Finance Corporation ("ACC") and Norwest Financial, Inc. ("Norwest") who
have agreed to purchase auto loan and lease contracts (the "Contracts") acquired
by Trans Lending from approximately 60 dealers located in Florida. The Company
will seek to enter other specialty financial service sectors primarily through
acquisitions of businesses or joint ventures with businesses or executives
having extensive experience in the targeted specialty.
Mortgage Warehouse Lending Operations. The Company provides
short-term (generally 10 to 30 day) financing to small to medium sized mortgage
bankers with at least $350,000 of capital who hold ("warehouse") the mortgage
loans
<PAGE>
<PAGE>
they originate pending the nonrecourse sale of such loans to institutional
investors in the secondary mortgage market such as government sponsored or
sanctioned entities, e.g., the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC") and/or accredited financial
institutions such as banks, thrifts, insurance carriers and large mortgage
bankers (each such entity or firm, an "Agency," and collectively, the
"Agencies"). The mortgage loans for which the Company provides such financing
are primarily single family residences and other owner occupied residential
properties including one to four unit properties in which the owner is the
occupant of at least one of such units.
Generally, the Company's customers do not possess sufficient capital
or lines of credit to fully fund all of the loans they originate during the
period of time that transpires between the date on which a loan is closed and
the date on which an Agency will purchase that loan pursuant to the commitment
obtained from it by the customer (the "Agency Commitment Date"). The Company
provides its customers with lines of credit that are collateralized by the loans
that the Company funds. Those lines of credit enable the customers to warehouse
the loans for the period of 10 to 30 days that typically occurs between the
closing of a loan and the Agency Commitment Date. During this period, the
Company will hold the loan documents (generally, the promissory note and the
first deed of trust or mortgage securing the note) and upon delivery of the loan
documents to the Agency, the Company is paid the aggregate amount of the loan.
The Company manages the risks inherent in its business, and prepares,
tracks and confirms the on-time delivery of all necessary documents to the
appropriate Agency with its Collateral Tracking System ("CTS"), a proprietary
set of computer-based standards, procedures and controls. The CTS programs
enable the Company to avoid the problems caused by, and the monetary losses that
can result from, the frequent short-term processing deadlines, the high volume
of loan transactions and the complex document structures of mortgage loan
financing transactions which are integral parts of the mortgage loan warehouse
financing business.
Between June 14, 1993, the date when Pioneer recommenced business
operations upon its emergence from Chapter 11 bankruptcy proceedings (the
"Inception Date"), and September 30, 1996, no loan which was approved for
funding by the Company failed to close, and every loan which was closed with the
Company's funds during said period was sold to one of the Agencies in accordance
with the commitments given by them in advance of such closings. Accordingly, the
Company suffered no loss of its principal during that period. See "Business --
The Mortgage Loan Process From Application by a Customer Through Funding."
Automobile Loan Financing Operations. Trans Lending originates
consumer automobile financing transactions for non-prime borrowers (consumers
2
<PAGE>
<PAGE>
who are typically unable to obtain financing from traditional sources) by
acquiring Contracts from franchised and independent car dealers.
Strategy. The Company's multi-pronged growth strategy to maximize
long-term shareholder values is:
. Expanding the scope of the Company's mortgage warehouse lending
activities by increasing its available lines of credit and the number of
mortgage bankers served.
. Developing and expanding Trans Lending's automobile financing
activities through its representation of a greater number of banks and other
institutional purchasers of auto loans, and through the establishment of
Contract acquisition relationships with a greater number of franchised and
independent used car dealerships.
. Expanding into other specialty finance niche activities primarily
through acquisitions of businesses, or joint ventures with businesses or
executives having extensive experience in the targeted specialty.
. Obtaining commitments from Arthur H. Goldberg, the Company's Chief
Executive Officer, and Elie Housman, the Company's President and Chief Operating
Officer, to devote substantial portions of their time to the affairs of the
Company.
The Company's office is located at 6660 Reseda Boulevard, Reseda,
California 91330, and its telephone number at that location is (818) 776-0590.
3
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered.......................... 3,750,000 Units, each Unit consisting of one
share of Common Stock and One Class A
Warrant entitling the holder to purchase one
share of Common Stock for $ [the Market
Price] per share.
Common Stock currently
outstanding................................ 1,442,272 shares (1)
Common Stock to be outstanding
after Offering........................... shares (1)
Use of proceeds............................. The net proceeds of the Offering will be
used to increase the funds available for the
Company's warehouse lending operations.
A portion of such proceeds may be used to
enable Trans Lending to engage in the direct
financing of auto loan transactions, and as
working capital. See "Use of Proceeds."
Nasdaq SmallCap Market symbols
Units (proposed).......................... PCFCU
Common Stock................................ PCFC
Class A Warrants (proposed)............... PCFC[A]
Proposed Boston Stock Exchange
symbols
Units .................................... [ ]
Common Stock................................ [ ]
Class A Warrants ......................... [ ]
Proposed Pacific Stock Exchange
symbols
Units .................................... [ ]
Common Stock................................ [ ]
Class A Warrants ......................... [ ]
Risk Factors................................ The Offering involves a high degree of risk.
See "Risk Factors" beginning on page 10.
</TABLE>
- ----------
(1) Does not include (a) up to 4,875,000 shares of Common Stock issuable in the
event that (i) all of the Class A Warrants are fully exercised; (ii) the
Underwriters'
4
<PAGE>
<PAGE>
over-allotment option is fully exercised; and (iii) the Class A Warrants to be
issued in connection therewith are fully exercised; (b) up to 1,056,424 shares
of Common Stock issuable upon exercise of various warrants and options which
were heretofore granted by the Company at exercise prices ranging from $[ ]
to $[ ] (i) in the initial public offering of securities which the Company
completed in August 1996 (the "IPO"); (ii) to various officers; (iii) to United
the Mizrahi Bank & Trust Company ("UMB"); or (c) up to 750,000 shares of Common
Stock the which shall be issuable in the events that (i) the Representative's
Warrants are fully the exercised; and (ii) the Class A Warrants to be issued in
connection therewith are also fully the exercised; and (iv) up to 700,000 shares
of Common Stock which shall be issuable upon exercise of options granted by the
Company to Messrs. Goldberg and Housman, subject to approval by the
shareholders. See "Management - Employment Agreements;" "Principal Security
Holders;" "Description of Securities - UMB Option;" and "Underwriting."
5
<PAGE>
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following selected historical financial information relating
to the Company for the fiscal year ended March 31, 1996 has been derived from
the financial statements appearing elsewhere herein. Such information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Financial Statements and notes thereto
and the report of Arthur Andersen LLP, independent public accountants with
respect to the Company's financial statements appearing elsewhere therein. The
income statement data set forth below with respect to the six month period ended
September 30, 1996, and the balance sheet data at September 30, 1996 are derived
from the unaudited financial statements appearing elsewhere herein. In the
opinion of management of the Company, such unaudited financial statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation thereof. The income statement data for the six month period
ended September 30, 1996 is not necessarily indicative of the results which may
be expected for any interim period or the full fiscal year.
The Proforma - Offering information includes and accounts for the
effects of: (a) the payment of the principal of and accrued interest on certain
bridge financing loans undertaken by the Company in connection with the IPO; and
(b) the anticipated results of the completion of the sale of 3,750,000 Units
offered hereby (not including 562,500 Units subject to the Underwriters'
over-allotment option) at an assumed public offering price of $ per Unit (after
deduction of the estimated underwriting discounts and commissions, and expenses
of the Offering).
6
<PAGE>
<PAGE>
Proforma Statement of Operations Data for the year ended March 31, 1996:
(in 000's except for share related data)
<TABLE>
<CAPTION>
Financial Statement Offering Adjustments(1) Proforma
Balance IPO Current Offering Balance
------------------- --- ---------------- ---------
<S> <C> <C> <C> <C>
Income $ 97 $ 97
Costs and Expenses:
Direct Costs (174) $ 79 (2) (95)
Operating Expenses (434) (110) (3) (544)
Total Costs and Expenses 608 ( 31) (639)
Loss from Operations (511) (31) (542)
Other Income (Expenses) 31 31
Net Loss $ (480) $( 31) $(511)
======= ====== ======== =====
Net Loss per Share
of Common Stock $(0.58) $(0.10)
Weighted Average
Shares Outstanding (4) 826,644 5,192,272
Common and Common
Equivalent Shares
Outstanding 835,000 607,272 (5) 3,750,000 (6) 5,192,272
</TABLE>
- ----------
(1) Offering adjustments do not include the potential earnings impact from the
Company's ability to utilize the net proceeds obtained from the Offering in its
operations for the year ended March 31, 1996.
(2) To eliminate interest expense on the bridge financing undertaken by the
Company in connection with its IPO (the "IPO Bridge Financing") which was paid
upon completion of the IPO.
(3) Incremental payroll expense payable to the Company's chief executive officer
and chief financial officer. See "Management - Employment Agreements."
(4) Share and per share amounts have been have been adjusted to reflect the
effects of a 1:758 reverse stock split which occurred in June 1996.
(5) To reflect the effects upon the year ended March 31, 1996 of issuance of (a)
600,000 shares of Common Stock in August 1996 upon completion of the IPO; and
(b) 7,272 additional shares of Common Stock issued in June 1996 to certain
lenders who had provided part of the IPO Bridge Financing (the "IPO Bridge
Financing
7
<PAGE>
<PAGE>
Lenders"). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Bridge Lending."
(6) To reflect the effects on the year ended March 31, 1996 of issuance of
3,750,000 shares of Common Stock upon completion of the Offering.
Proforma Statement of Operations Data for the six months ended September 30,
1996:
(in 000's except for share related data)
<TABLE>
<CAPTION>
Financial Statement Offering Adjustments(1) Proforma
Balance IPO Current Offering Balance
------------------- --- ---------------- ---------
<S> <C> <C> <C> <C>
Income $ 130 $ 130
Costs and Expenses:
Direct Costs (163) $ 42 (2) (121)
Operating Expenses (219) (46) (3) (265)
---- ---- ----- ----
Total Costs and Expenses 382 (4) (386)
---- ---- ----- ----
Loss from Operations (252) (4) (256)
---- ---- ----- ----
Other Income (Expenses) 7 7
---- ---- ----- ----
Net Loss $ (245) $ (4) $ (249)
==== ==== ===== =====
Net Loss per Share
of Common Stock $ (0.25) $(0.05)
Weighted Average
Shares Outstanding (4) 996,629 5,192,272
Common and Common
Equivalent Shares
Outstanding 1,442,272 3,750,000 (4) 5,192,272
</TABLE>
- ----------
(1) Offering adjustments do not include the potential earnings impact from the
Company's ability to utilize the net proceeds obtained from the Offering in its
operations for the six months ended September 30, 1996.
(2) To eliminate interest expense on the IPO Bridge Financing which was paid
upon completion of the IPO.
(3) Incremental payroll expense payable to the Company's chief executive officer
and chief financial officer. See "Management - Employment Agreements."
(4) To reflect the effects on the six month period ended September 30, 1996 of
issuance of 3,750,000 shares of Common Stock upon completion of the Offering.
8
<PAGE>
<PAGE>
Proforma Balance Sheet Data at September 30, 1996:
(in 000's)
<TABLE>
<CAPTION>
Financial Statement Offering Proforma
Balance Adjustments Balance
------- ----------- -------
<S> <C> <C> <C>
Cash $ 587 $ (1) $
Loans Receivable, Mortgage
Warehouse 3,086 3,086
Other Assets 397 --- 397
------- ------- -------
Total Assets $ 4,070 $ , $ ,
======= ======= =======
Loans Payable, Mortgage
Warehouse $ 1,582 $ 1,582
Other Liabilities 232 232
------- ------- -------
Total Liabilities $ 1,814 $ 1,814
======= ======= =======
Common Stock and
Paid in Capital $10,577 $ $
Accumulated Deficit (8,321) (8,321)
------ ------ ------
Total Shareholder's Equity $ 2,256 $ $
======= ======= =======
</TABLE>
- -----------------------------
(1) To reflect the sale of 3,750,000 Units in connection with this Offering at $
per Unit.
9
<PAGE>
<PAGE>
RISK FACTORS
An investment in the Units offered hereby involves a high degree
of risk. Prospective investors should carefully consider all of the information
in this Prospectus including the following risk factors.
LIMITED OPERATING HISTORY; RECENT EMERGENCE FROM CHAPTER 11 BANKRUPTCY
PROCEEDINGS; CONTINUING LOSSES; COMPANY'S ABILITY TO CONTINUE AS A GOING
CONCERN.
Pioneer emerged from the protection of Chapter 11 of the
Bankruptcy Code in April 1993. Accordingly, although Pioneer was founded in 1980
and engaged in substantial business operations during the ensuing nine year
period, the nature and extent of the business that it has conducted since April
1993 are substantially different from the business which it conducted prior to
commencement of such proceedings in January 1990. Due, in large part to the
limited credit lines that were available to Pioneer upon its emergence from
bankruptcy and the time it took thereafter to find and approve two mortgage
banking customers, Pioneer only engaged in limited operations during said fiscal
year, and incurred a loss of $393,155 for said year. During the fiscal years
ended March 31, 1995 and 1996, the Company sustained losses from operations in
the amounts of $583,736 and $511,159, respectively. At September 30, 1996, the
Company's accumulated deficit amounted to $8,320,936 (including accumulated
deficit of approximately $6,602,000 upon emergence from bankruptcy in April
1993). In order to operate profitably in future periods, the Company will need
to increase its capacity to fund loan transactions and correspondingly increase
loan volume demand. Its ability to achieve such increases will depend upon such
factors as how successful the Company will be in acquiring additional lines of
credit from its financing sources, and in establishing new customer
relationships with others mortgage bankers. The net proceeds which the Company
derived from its IPO have enabled it to seek such additional credit lines and to
expand its customer base. Since the completion of the IPO in August 1996, the
Company has sought new credit lines from approximately 20 banks and other
financial institutions. As of the date of this Prospectus, the Company's
applications have been rejected by three of such institutions, and are still
pending with the others. There can be no assurance that the Company will achieve
profitability in the future, if at all. If the Company fails to achieve
profitability, it would be materially adversely affected. In this regard, see
the Report of Independent Public Accountants accompanying the Company's audited
financial statements appearing elsewhere herein which cites substantial doubt
about the Company's ability to continue as a going concern. There can be no
assurance that the Company will achieve profitability in the future, if at all.
See "Business - Pioneer's Chapter 11 Bankruptcy Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Trans Lending commenced operations in December 1996. There can be
no assurance that Trans Lending will be able to successfully implement its
business
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strategy or that unanticipated expenses, problems or difficulties will not
result in material delays in its implementation. See "Business -- The Company's
Acquisition of Trans Lending."
POSSIBLE NEED FOR ADDITIONAL FINANCING.
Implementation of the Company's growth strategy and future growth
of the Company's business may require additional capital. No assurance can be
given that the Company will be able to obtain the necessary financing. The
Company currently estimates that the net proceeds of the Offering, together with
cash generated from operations, will be sufficient to finance its current
operations and planned capital expenditures for at least the next 12 months.
However, there can be no assurance that the Company will not require additional
capital at an earlier date. The Company may, from time to time, seek additional
funding through public or private debt or equity financing. There can be no
assurance that funding will be available as needed or, if available, on terms
acceptable to the Company. If additional funds are raised by issuing equity
securities, existing shareholders may experience dilution.
DEPENDENCE ON AND INEXPERIENCE OF MANAGEMENT; KEY MAN INSURANCE.
Although Messrs. Goldberg and Housman have experience in managing
businesses substantially larger than the Company, neither Mr. Goldberg nor Mr.
Housman has material experience managing a mortgage warehouse lending business.
The Company will be depending on Messrs. Goldberg and Housman to provide
managerial supervision and strategic guidance in connection with the conduct of
the Company's operations. There can be no assurance that the management provided
by Messrs. Goldberg and Housman will result in profitable operations. The
Company has applied for key man life insurance coverage on Messrs. Goldberg and
Housman. No assurance can be given that such insurance will be issued covering
any or all of such persons. See "Management."
In addition, the success of Trans Lending's operations is
dependent upon the experience and ability of Kenneth Germain, Trans Lending's
Chief Operating Officer. The loss of Mr. Germain could have an adverse effect on
Trans Lending's business. See "Business -- The Company's Acquisition of Trans
Lending."
RELIANCE UPON LIMITED SOURCES OF FUNDS; POSSIBLE UNAVAILABILITY OF ADDITIONAL
FUNDING SOURCES.
The Company's principal source of financing is the warehousing
line of credit granted to Pioneer by UMB. This line of credit, in the original
principal amount of $2,000,000, has been increased to $4,000,000, and is
currently scheduled to expire August 31, 1997. The Company has applied for
additional lines of credit with approximately 20 banks and other financial
institutions. No assurance can be given that the Company will be able to
maintain its existing financing arrangements, or
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obtain replacement financing as current arrangements expire. Furthermore, if the
Company's mortgage banking customers experience difficulty in selling their
mortgage loans or mortgage-backed securities, the Company may have to curtail
loan warehousing activities, which would have a material adverse effect on the
Company's operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources;" and
"Business."
DEPENDENCE ON LIMITED NUMBER OF MORTGAGE BANKING CUSTOMERS.
The Company is conducting business with Windtree Financial Corp.
("Windtree"), 1st Financial Corp. ("1st Financial"), Pacific Crest Mortgage
Corp. ("Pacific Crest"), National Home Funding Corp. ("Home Funding") and
Citizens Mortgage Service Corp. ("Citizens"), as customers. The Company is
currently analyzing applications from four other potential customers who
originate residential family mortgage loans in Arizona, California, Colorado,
Delaware, Florida, Nevada, New Mexico, New Jersey, New York, Oregon,
Pennsylvania, South Carolina, Utah and Washington.
Although the Company expects to conduct business in the future
with a greater number of mortgage banking customers, and thereby reduce the
risks attendant in relying upon a small number of customers to support its
business, no assurance can be given that it will receive applications from
potential customers who will be able to satisfy its standards, or if it does
receive such applications, that such applicants will thereafter engage in
material volumes of mortgage warehouse lending transactions with the Company.
The cessation of business by any customers could materially adversely affect the
Company's ability to generate sufficient revenues to operate profitably. See
"Business - The Company's Mortgage Banking Customers."
TRANS LENDING'S DEPENDENCE ON DEALERS.
Trans Lending's business depends in large part on its ability to
maintain and service it relationships with automobile dealers. While Trans
Lending believes that it has been successful in developing and maintaining
relationships with dealers, there can be no assurance that Trans Lending will be
successful in continuing to maintain such relationships or in increasing the
number of dealers with which it does business, or that its existing dealer base
will generate volume of loans or leases sufficient to permit Trans Lending to
operate profitably. See "Business -- Sales and Marketing."
HIGH RISK OF LOANS AND LEASES ORIGINATED OR TO BE ACQUIRED BY TRANS LENDING.
If Trans Lending engages in direct financing activities, its
ability to generate profits will depend upon, among other things, its capacity
to properly evaluate the creditworthiness of customers and to minimize losses
following
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defaults with the proceeds from the sale of repossessed collateral and with
insurance proceeds. Trans Lending has just commenced operations, does not
possess a seasoned loan or lease portfolio, and has no prior experience upon
which to gauge the delinquency and loss rates which may apply to it in future
periods. If Trans Lending engages in direct financing activities, there can be
no assurance that the performance of Trans Lending's portfolio will be
satisfactory, or that if satisfactory results are obtained, that Trans Lending
will be able to maintain such performance, or that the rate of future defaults
and/or losses will be at levels that will permit Trans Lending to achieve
profitability. See "Business -- The Non-Prime Auto Finance Industry;" and "--
Trans Lending's Business Strategy."
CYCLICAL NATURE OF MORTGAGE BANKING INDUSTRY.
Mortgage banking firms have historically experienced a wide range
of financial results, from highly profitable to highly unprofitable. These
financial results are due to many factors which affect most, if not all, firms
in the mortgage banking business at about the same time, but three predominate:
changes in mortgage interest rates, the availability of affordable credit and
the state of the domestic economy. These three factors, among others, affect the
demand for new and used housing and thus the demand for financing and
refinancing of mortgages.
COMPETITION IN THE MORTGAGE BANKING BUSINESS.
The business of originating and financing the origination of
residential mortgage loans is highly competitive. Certain companies which have
longer operating histories and significantly greater resources than those of the
Company are engaged in providing multi-state, computer-based bridge financing of
residential mortgage loans. Larger established mortgage warehouse lenders are
making substantial investments in their computer operations to achieve
significant economies of scale and greater flexibility in rendering services.
Also, major bank-related organizations like the Mortgage Warehouse Division of
Bank of New York, Bank of America, PNC Bank, and other businesses engaged in
lending activities, such as CWM Mortgage Holding, Inc.'s Warehouse Lending
Corporation of America, The Associates First Collateral Services and General
Electric Capital Corp.'s Residential Funding Corporation are entering or
reentering the mortgage warehouse financing business. There can be no assurance
that the Company will be able to compete effectively with such competitors, that
additional competitors will not enter the market, or that such competition will
not make it more difficult for the Company to secure a sufficient number of high
quality mortgage banking customers to realize its anticipated business growth.
See "Business - Competition."
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COMPETITION AND MARKET CONDITIONS IN THE AUTOMOBILE FINANCE BUSINESS.
The non-prime consumer automobile finance market is highly
competitive. The level of competition has increased significantly in recent
years and this trend is expected to continue. Historically, commercial banks,
savings and loan associations, credit unions, captive finance subsidiaries of
automobile manufacturers and other consumer lenders, many of which have
significantly greater resources than Trans Lending, have not competed for
non-prime consumer business. To the extent that such lenders expand their
activities in the non-prime consumer market,Trans Lending's financial condition
and results of operations could be materially adversely affected. See
"Business--Competition." During the past two years, several companies have
devoted considerable resources to the non-prime consumer market, including
well-capitalized public companies. Specifically, Ford Motor Credit Company has
begun to finance non-prime consumers, General Electric Capital Corporation
established strategic alliances with several regional non-prime consumer
automobile finance companies and KeyCorp acquired AutoFinance Group, Inc., one
of Trans Lending's competitors. Other companies, including Mellon Bank
Corporation and Southern National Corporation, have also entered the market.
Trans Lending's business is also affected by certain demographic,
economic and industry trends. These trends include increased sales of used cars,
rising new car prices relative to used car prices, stability in non-prime
consumers' demand for used cars, the inability of non-prime consumers to find
lower cost financing from other sources and the overall level of interest rates
in general. A reversal of any of these trends or a change in any of these
conditions could have a material adverse effect on Trans Lending 's financial
condition and results of operations. See "Business--Competition."
IMPACT OF MORTGAGE INTEREST RATE FLUCTUATIONS.
Prevailing mortgage interest rates, which have an impact on
consumer decisions to obtain new loans or to refinance existing loans, will
affect the ability of the Company's mortgage banking customers to originate
mortgage loans. In recent years, a declining interest rate environment favorable
to mortgage loan originations has existed. Increasing interest rates could cause
a decrease in the pool of consumers seeking new or refinanced mortgage loan
transactions, and a concomitant increase in competition among mortgage bankers
for better quality mortgage loan transactions. Such increased competitive
pressures on the Company's customers might force the Company to decrease the
amount of the transactional fees that it charges in order to cooperate with its
customers' efforts to attract business from the diminished supply of better
quality loan customers, and thereby maintain good relationships with its
customers. Fluctuating interest rates also may affect the net interest income
earned by the Company resulting from the difference between the yield to the
Company on a mortgage loan warehoused by the Company and the interest paid by it
for funds advanced under its line of credit. The Company's net
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interest income is comprised of the spread between interest rates on mortgages
warehoused by it and interest rates paid on the Company's warehousing line of
credit. A decrease in this spread, or a decrease in the amount of the
transactional fees which the Company charges its customers, would have a
negative effect on the Company's net interest income and its ability to operate
profitably. See "Business."
RISKS ASSOCIATED WITH ACQUISITIONS.
The Company is not currently considering the acquisition of any
business, or a joint venture with any other business or individual. From time to
time in the future, the Company may enter into negotiations with respect to
potential acquisitions or joint ventures, some of which may result in
preliminary agreements. In the course of the Company's negotiations and/or due
diligence, these negotiations and/or preliminary agreements may be abandoned or
terminated. No assurance can be given that the Company will find suitable
acquisition or joint venture candidates, or that future acquisitions or joint
ventures will be financed and made on acceptable terms, or if completed, that
such acquisitions or ventures will be successful.
DEPENDENCE ON SECONDARY MARKET SALES; POTENTIAL CHANGES TO AGENCY PROGRAMS.
The Company's business will depend upon its mortgage banking
customers' abilities to sell new mortgage loans on favorable terms in the
secondary mortgage market in order to generate the funds necessary to originate
additional mortgage loans. Accordingly, any significant change in the secondary
mortgage market such as changes in the operations, programs, levels of activity,
underwriting criteria or applicable regulations of any of the Agencies, or in
the Company's customers' qualifications as loan issuers, sellers or servicers
under such regulations, could impair the Company's ability to warehouse mortgage
loans on a favorable or timely basis. Any such impairment could have a material
adverse effect on the Company's business and results of operations. See
"Business Regulation - Mortgage Warehouse Lending."
DEPENDENCE ON GOVERNMENT PROGRAMS.
Although the Company is not aware of any plans to discontinue or
reduce significantly the operation of programs administered by GNMA, FNMA and
FHLMC which facilitate the issuance of mortgage-backed securities, any such
action, as well as any reduction or impairment of the Company's mortgage banking
customers' continued eligibility to participate in such programs, would have a
material adverse effect on the Company's business operations and prospects. See
"Business."
Similarly, although the Company is not aware of any plans for any
of the Agencies to enter the mortgage warehouse lending business, any of these
Agencies has the capital, the expertise, and the industry knowledge to enter
this
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business in a significant manner. Furthermore, if any of the Agencies did enter
this business, it would constitute very strong competition to the Company in its
efforts to secure well qualified customers on terms favorable to the Company.
Such an increase in competition in the mortgage warehouse business could have a
material adverse effect on the Company's business operations and prospects. See,
"Business - Competition."
REGULATION AND REGULATORY CHANGES - MORTGAGE WAREHOUSE LENDING.
Although mortgage loan warehousing is not presently subject to
federal regulation, the California Finance Lenders Law went into effect July 1,
1995. That law imposes licensing obligations on the Company, requires the filing
of annual and periodic reports, establishes maximum interest rates and repayment
terms in certain cases, and provides for fines and imprisonment for violation of
the law. Other participants in the mortgage warehouse financing process, such as
title companies and appraisers, also may be regulated by the states in which
they reside and such regulations often determine the scope and approach of the
Company's collateral control monitoring program. Furthermore, mortgage banking
is a highly regulated industry. The Company's mortgage banking customers are
subject to the rules and regulations of, and examinations by, the Federal
Housing Administration ("FHA"), the Veterans Administration ("VA"), GNMA, FNMA,
FHLMC and state regulatory authorities with respect to originating, processing,
underwriting, selling, securitizing and servicing residential mortgage loans. In
addition, there are other federal and state statutes and regulations affecting
such activities. Potential future changes in these rules and regulations could,
among other things, adversely impact its customers' business activities by,
among other things, establishing eligibility criteria for mortgage loan
warehousing, prohibiting discrimination, providing for inspections and
appraisals of properties, requiring credit reports on prospective borrowers,
regulating payment features, requiring disclosures to customers, governing
secured transactions, establishing collection, repossession and claims handling
procedures and other trade practices and, in some cases, fixing maximum interest
rates, insurance coverages, fees and loan amounts. Failure to comply with these
requirements could lead to loss of approved status, class action lawsuits and
administrative enforcement actions.
Although the Company is not presently aware of any pending or
proposed laws, rules or regulations which, if adopted, would make compliance
more difficult or expensive, restrict the Company's ability to fund the
warehousing of mortgage loans, restrict the Company's customers' ability to
originate or sell mortgage loans, further limit or restrict the amount of
interest and other charges earned from loans warehoused by the Company or
otherwise adversely affect the business or prospects of the Company, no
assurance can be given that limitations and/or restrictions of that nature will
not be adopted in the future. See "Business -- Regulation -- Mortgage Warehouse
Lending."
REGULATION - NON-PRIME AUTO FINANCING.
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Trans Lending's business will be subject to numerous federal and
state consumer laws and regulations, which, among other things, require it to:
obtain and maintain certain licenses and qualifications; limit the interest
rates, fees and other charges Trans Lending is allowed to charge; limit or
prescribe certain other terms of its contracts; provide specified disclosure;
and define Trans Lending's rights to repossess and sell collateral. An adverse
change in existing laws or regulations, or in the interpretation or enforcement
thereof, or the promulgation of any additional laws or regulations would have an
adverse effect on Trans Lending's business. See "Business -- Non-Prime
Automobile Financing."
RISK OF CHANGING ECONOMIC CONDITIONS; GEOGRAPHIC CONCENTRATION OF BUSINESS.
The Company's results of operations will depend heavily upon the
ability of its mortgage banking customers to originate mortgage loans. This
ability is largely dependent upon general economic conditions in the geographic
areas that the Company serves. Because these general economic conditions
fluctuate, there can be no assurance that prevailing economic conditions will,
at any point in time, favor the Company's business and operations. These changes
could materially and adversely affect the Company's revenues and net income. See
"Business."
THE OPERATIONAL PROCESSING RISK.
The basis for the Company's mortgage warehouse financing business
is the acceptance of long-term loans, typically 15 to 30 year mortgages, from
the Company's customers as collateral for very short-term financing, typically
15 days, until the mortgage loans are sold to an Agency. Although the Company's
customers must have a commitment for each loan from an approved Agency before
the Company will extend mortgage warehouse financing, there is no guarantee that
the Agency will, in fact, accept the mortgage loan when delivered to it. Among
the reasons for which a mortgage loan would not be accepted upon delivery are
the following: incomplete documentation, inaccurate documentation or an
over-allotment to the Agency's commitment by the mortgage originator.
If for any reason an Agency does not accept the mortgage loan,
the Company could find itself the owner of a long-term loan of less than market
value instead of short-term bridge financing collateral. While the Company has a
repurchase agreement with each of its customers which requires the customer to
buy back the mortgage loan upon demand, there is no assurance that the customer
will honor the repurchase agreement. Furthermore, the Company can give no
assurance that, absent this repurchase by its customer, it will be able to sell
the mortgage loan to another secondary market investor without incurring a loss
in its investment in the loan. Failure of the Company to dispose of such a
mortgage loan not accepted by an Agency could materially adversely affect the
Company's financial position, its liquidity, and its relationships with its
sources of financing, principally
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banks to whom it may provide certain loan covenants that could be violated by
one or several of these events.
Furthermore, frequent short-term processing deadlines, a high
volume of loan transactions, the complex document structure of each mortgage
loan financing transaction, and very substantial penalties for delay in
delivering loan documents to the secondary market, which may range from a
surcharge of 1% - 2% of the principal amount of a loan in the case of a delay
regarding an individual loan commitment, to a complete rejection and refusal to
purchase an entire pool of loans, in the case of a delay in filling a pool
commitment, are an integral part of the mortgage loan warehouse financing
business. Although a delay in purchasing a pool of loans could hinder the
Company's ability to timely fund additional loans submitted by other customers,
and thereby adversely affect its ongoing relations with such other customers as
a reliable source of mortgage warehouse financing, any charges or penalties
resulting from such delays are the responsibility of the Company's customers.
See "Business - The Collateral Tracking System;" and "Business - The Mortgage
Loan Process From Application to a Pioneer Customer Through Funding."
DIVIDEND POLICY AND RESTRICTIONS ON PAYMENT OF DIVIDENDS.
The Company has never paid cash dividends on its Common Stock.
Furthermore, the provisions of the plan of reorganization pertaining to
Pioneer's emergence from bankruptcy prohibit Pioneer from paying any dividends
to its common shareholders until the sum of $1,350,000 shall have been paid to
Pioneer's pre-bankruptcy unsecured creditors. Further in accordance with said
plan, Pioneer became obligated to pay certain portions of its net income in
satisfaction of said payment obligation to its pre-bankruptcy creditors. Upon
consummation of the Merger, the Company became obligated, by operation of law,
to comply with such payment obligation and dividend payment prohibition. The
Board of Directors does not anticipate paying cash dividends on its Common Stock
in the foreseeable future as it intends to retain future earnings to finance the
growth of the business. The payment of future cash dividends on the Common Stock
will depend on such factors as earnings levels, anticipated capital
requirements, the operating and financial condition of the Company and other
factors deemed relevant by the Board of Directors. See "Dividend Policy;" "The
Merger" and "Business - Pioneer's Chapter 11 Bankruptcy Proceedings."
BROAD DISCRETION IN APPLICATION OF PROCEEDS.
The Company intends to use all of the net proceeds of the
Offering for mortgage warehouse lending activities, provided, however, that it
has reserved the right to reallocate portions of such net proceeds for other
uses -- up to $2,000,000 may be used for direct financing of Contracts, up to
$500,000 may be used for working capital and up to $1,000,000 of such net
proceeds may be used to enter into other specialty financial service sectors
through acquisitions or joint ventures with
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entities and executives having extensive experience in the targeted specialty.
See "Use of Proceeds."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE CLASS A
WARRANTS.
The Company will be able to issue shares of its Common Stock upon
exercise of the Class A Warrants only if there is then in effect a current
prospectus relating to such Common Stock, and only if such Common Stock is
qualified for sale or exempt from such qualification under applicable state
securities laws of the jurisdictions in which the various holders of the Class A
Warrants reside. Although the Company has undertaken to, and intends to, file
and keep current a prospectus which will permit the purchase and sale of the
Common Stock underlying the Class A Warrants, there can be no assurance that the
Company will be able to do so. Class A Warrants may not be exercised after [
], 1997 (nine months after the date of this Prospectus) unless and
until a Post-Effective Amendment has been filed with the Securities and Exchange
Commission ("SEC" or Commission") and becomes effective. Although the Company
intends to seek to qualify for sale the shares of Common Stock underlying the
Class A Warrants in those states in which the Units are to be offered, no
assurance can be given that such qualification will occur. The Class A Warrants
may be deprived of any value and the market for the Class A Warrants may be
limited if a current prospectus covering the Common Stock issuable upon exercise
of the Class A Warrants is not kept effective or if such Common Stock is not
qualified or exempt from qualification in the jurisdictions in which the holders
of the Class A Warrants then reside. See "Description of Securities - Class A
Warrants."
MARKET FOR UNITS, COMMON STOCK AND CLASS A WARRANTS; POSSIBLE VOLATILITY OF
PRICES.
Although the Common Stock and the warrants issued by the Company
in connection with its IPO have been quoted on the Nasdaq SmallCap Market since
August 1996, both securities have often been and may continue to be thinly
traded. The Company has applied for quotation of the Units and Class A Warrants
on the Nasdaq SmallCap Market, and for listing of the Units, Common Stock and
Class A Warrants on the Boston Stock Exchange and the Pacific Stock Exchange.
Such quotation and/or listings will not provide any assurance that an active
public market for the Units, Common Stock or Class A Warrants will develop or be
sustained. If an active public market does not develop or is not sustained, the
market price and liquidity of the Units, Common Stock and/or Class A Warrants
may be adversely affected. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that often have been unrelated
or disproportionate to the operating performance of companies. These
fluctuations as well as general economic and market conditions may adversely
affect the market price of the Units, Common Stock and/or Class A Warrants
prevailing from time to time.
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CLASS A WARRANTS REDEEMABLE.
The Class A Warrants may be redeemed by the Company, whether or
not a current prospectus is available, at any time during the four year period
commencing one year after the date of this Prospectus at a price of $.10 per
Class A Warrant, provided that the closing price of the Common Stock as quoted
on the principal market on which such shares shall then be trading shall be not
less than the Market Price per share during any period of 30 consecutive
trading days ending on the third day preceding the date of such notice. Although
a Class A Warrant holder has the right to exercise his Class A Warrants through
the date of redemption, he may not be able to exercise because of lack of funds
at the time of redemption or if there is not then in effect a current prospectus
relating to the Common Stock underlying such Class A Warrants. Furthermore, in
the event that the Company timely and properly issues a notice of redemption of
the Class A Warrants, no trading in such securities shall be permitted after the
close of business on the date of redemption. At such time the value of all Class
A Warrants which shall not have been timely exercised prior thereto shall be
reduced to the redemption price. See "Underwriting."
AUTHORIZATION OF PREFERRED STOCK.
The Company's Certificate of Incorporation authorizes the
issuance of preferred stock with designations, rights and preferences determined
from time to time by the Board of Directors. Accordingly, the Board of Directors
is empowered, without shareholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. The issuance of preferred stock with anti-takeover
measures could have a depressive effect on the market price of the Common Stock
(should a market develop for the Common Stock) and could discourage hostile bids
in which shareholders may receive premiums for their shares. See "Description of
Securities -- Preferred Stock."
IMPACT ON THE MARKET OF EXERCISE OF REPRESENTATIVE'S WARRANTS.
The holders of the Representative's Warrants may exercise them at
a time when the Company would, in all likelihood, be able to obtain equity
capital by the sale of securities on terms more favorable than those provided by
the Representative's Warrants. If the Representative's Warrants are exercised,
the dilution of the voting and equity interests of the Company's shareholders
which shall result therefrom could cause a decrease in the market price of the
Company's securities, and may also adversely affect the Representative's ability
to make and maintain an orderly market in the Company's securities. See
"Description of Securities - Representative's Warrants."
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THE REPRESENTATIVE'S INFLUENCE ON THE MARKET FOR THE COMPANY'S SECURITIES.
A significant amount of the securities offered hereby may be sold
to customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such securities with the
Representative. Although it has no obligation to do so, the Representative
intends to make a market in the Units, Common Stock and Class A Warrants and may
otherwise effect transactions in such securities. If it participates in the
market, the Representative may exert significant influence on the market, if one
develops, for the securities described in this Prospectus. Such market making
activity may be discontinued at any time. The price and liquidity of the Units,
Common Stock and Class A Warrants may be significantly affected by the degree,
if any, of the Representative's participation in such market. Additionally, the
Representative may participate in the solicitation of the exercise of the Class
A Warrants, in which event, it may be prohibited from engaging in any market
making activities with respect to the Units, Common Stock and Class A Warrants
during certain periods while the Class A Warrants are exercisable. Such
restrictions may adversely affect the price and liquidity of the Units, Common
Stock and Class A Warrants. Furthermore, if the Representative should exercise
its registration rights to effect the distribution of the Units, Common Stock
and Class A Warrants underlying the Representative's Warrants, the
Representative, prior to and during such distribution, will be unable to make a
market in the Units, Common Stock and Class A Warrants. If the Representative
ceases making a market, the market and market prices for the Units, Common Stock
and Class A Warrants may be adversely affected, and the holders thereof may be
unable to sell such securities.
SHARES ELIGIBLE FOR FUTURE SALE.
Sales of the Common Stock in the public market after this
Offering could adversely affect the market price of the Common Stock. Upon
completion of this Offering, the Company will have outstanding [ ]
shares of Common Stock ([ ] shares if the Underwriters' over-allotment
option is exercised in full). Of these shares, [ ] shares will be freely
tradeable without restriction under the Securities Act. The remaining [ ]
shares of Common Stock held by existing shareholders are restricted securities
within the meaning of Rule 144. In accordance with Rule 144, 802,272 of such
shares are presently eligible for sale to the public notwithstanding the fact
that they have not been registered under the Securities Act. Pursuant to certain
restrictions upon sale imposed by a "lockup" agreement which the holders of said
802,272 shares executed and delivered to the underwriter of the IPO as a
condition to the closing of that offering, all of those shares will be
ineligible for sale in the public market until August 15, 1997, provided that,
after May 15, 1997, each of the holders of such shares may sell up to 10% of
such holder's shares pursuant to Rule 144. In addition to the foregoing lockup
restrictions, the Representative has required, as a condition to the closing of
the Offering, that each of the Company's directors, officers, key employees and
holders of 2% or more of the
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Common Stock must execute written lockup agreements providing that, for a period
of 12 months from the date of this Prospectus, they shall not offer, register,
sell, contract to sell, grant an option for the sale of, issue, assign, transfer
or otherwise dispose of any of the Company's securities held by them without the
Representative's prior written consent. See "Description of Securities -
Registration Rights," "Shares Eligible for Future Sale," "Dividend Policy" and
"Underwriting."
IMPACT OF MERGER ON NET OPERATING LOSS CARRYFORWARDS.
As of March 31, 1996, the Company had accumulated net operating
loss carryforwards in the approximate amount of $2.0 million. The Merger has
limited the Company's use of such net operating loss carryforwards to an annual
limitation not to exceed approximately $100,000 imposed by Section 382 of the
Internal Revenue Code of 1986, as amended. Management believes that the losses
that the Company has incurred since the Merger (aggregating $896,000) are not
subject to these limitations. The Company's ability to use such net operating
loss carryforwards is dependent upon its ability to generate taxable income in
the future. See Note 6 of Notes to Financial Statements of Pioneer and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Impact of Merger on Net Operating Loss Carryforwards."
INDEMNIFICATION OF DIRECTORS AND OFFICERS; POSSIBLE INABILITY TO RENEW OFFICERS'
AND DIRECTORS' LIABILITY INSURANCE.
Arthur H. Goldberg and Elie Housman, the Chief Executive Officer
and Chief Operating Officer, of the Company, respectively, have agreed to enter
into employment agreements with the Company, and Glenda Klein, the Company's
Chief Financial Officer, has entered into an employment agreement with the
Company. Such proposed agreements will provide, and Ms. Klein's agreement does
provide, for the indemnification of such individuals against losses that they
may incur in legal proceedings resulting from their services to the Company in
the capacities of officers and directors. In addition, the Company's Bylaws
provide for the indemnification of directors and officers to the fullest extent
permitted by law. The Company has entered into indemnification agreements with
its other directors. Although the Company currently maintains officers' and
directors' liability insurance providing limits of $1,000,000 per occurrence,
there can be no assurance that the Company will be able to maintain such
insurance on acceptable terms or at all. Failure to maintain such insurance
could have a material adverse effect on the Company's ability to attract and
retain directors and officers. Any amounts which the Company may be required to
pay under such indemnification agreements which are not reimbursed by insurance,
either because no insurance policy is then in effect or because the amount of
such required payments exceeds the policy limit, could have a material adverse
effect on the Company. See "Management - Employment Agreements," and "Management
- - Indemnification of Directors and Officers."
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<PAGE>
NASDAQ MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF SECURITIES FROM NASDAQ
SYSTEM; RISKS OF LOW-PRICED STOCKS.
The Common Stock is listed on the Nasdaq SmallCap Market. The
Company has applied to the Nasdaq SmallCap Market for listing of the Units and
Class A Warrants. If the Company is unable to satisfy Nasdaq's listing criteria
for the Units and/or Class A Warrants, or if such securities are listed on the
Nasdaq SmallCap Market, and the Company thereafter fails to satisfy the
maintenance criteria for continued listing of any or all of such securities,
they will be subject to being delisted, and trading, if any, would thereafter be
conducted in the OTC Bulletin Board. As a consequence of such delisting, an
investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Units, Common Stock and/or the Class A
Warrants. The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks. The SEC
regulations generally define a penny stock to be any equity security that has a
market price or exercise price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include any equity security listed on Nasdaq and any
equity security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three (3) years,
(ii) net tangible assets of at least $5,000,000 if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000 during such issuer's last three years of operations.
Unless an exception is available, the regulations require the delivery, prior to
any transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. Furthermore, in
connection with any transaction in a penny stock, brokers must also provide
investors with current bid and offer quotations therefor, the compensation of
the broker and its salesperson in connection therewith and monthly account
statements showing the market value of each penny stock in the investor's
account. See "Description of Securities - Nasdaq SmallCap Market Listing; Boston
Stock Exchange and Pacific Stock Exchange Listing Applications."
In addition, if the Units, Common Stock or Class A Warrants are
not quoted on Nasdaq, or the Company does not have $2,000,000 in net tangible
assets, trading in the Units, Common Stock and Class A Warrants would be covered
by Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") for non-Nasdaq and non-exchange listed securities. Under
such rule, broker/dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities also are exempt from this
rule if the market price is at least $5.00 per share.
As of the date of this Prospectus, the Company believes that the
Units, Common Stock and Class A Warrants will be outside the definitional scope
of a penny stock. In the event the Company's securities were subsequently to
become
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<PAGE>
characterized as penny stocks, the market liquidity for such securities could be
adversely affected. In such an event, the regulations on penny stocks could
limit the ability of broker/dealers to sell the Units, Common Stock and/or the
Class A Warrants and thus the ability of purchasers of the Units, Common Stock
and Class A Warrants to sell such securities in the secondary market would be
adversely affected.
DIRECTORS' INVOLVEMENT IN BANKRUPTCY PROCEEDINGS.
Between 1973 and 1989, Arthur H. Goldberg served as President and
Chief Operating Officer of Integrated Resources, Inc. ("Integrated"), a
diversified financial services company which commenced proceedings under Chapter
11 of the U.S. Bankruptcy Code in 1989. During the period in 1989 immediately
prior to the commencement of such bankruptcy proceedings, Mr. Goldberg served as
Integrated's President and Chief Executive Officer. In November 1994,
Integrated's sixth amended reorganization plan was consummated. In accordance
therewith, senior creditors of the reorganized company (known as Presidio
Capital Corp.) may receive as much as 70% of their original claims totalling
approximately $1.1 billion, and junior creditors will receive between 3.1% and
4.5% of their claims of approximately $672 million.
In 1993, Glenda Klein, a director and Senior vice President of
the Company, and her husband, filed a petition pursuant to Chapter 7 of the
Bankruptcy Code. After receiving a discharge in bankruptcy, Mr. and Mrs. Klein
reopened the bankruptcy proceedings and converted same to a case under Chapter
11 of the Bankruptcy Code. In April 1995, Mr. and Mrs. Klein deposited $100,000
into the Bankruptcy Court for the purpose of paying in full, with interest, any
of the creditors of their bankrupt estate who had filed claims against in said
proceedings. In October 1995, such proceedings were closed.
LACK OF UNDERWRITING HISTORY
The Representative was organized in February 1992 and first
registered as a broker-dealer in 1994. Prior to this Offering, the
Representative has participated as a sole or co-manager in four public
offerings. Prospective purchasers of the Units offered hereby should consider
the lack of experience of the Representative in being a manager of an
underwritten public offering. See "Underwriting."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain Statements in the Prospectus Summary and under the
captions "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operation," "Business" and
elsewhere in this Prospectus constitute "forward-looking statements' within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may
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<PAGE>
cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statement. Such factors include, among others, the following general economic
and business conditions: fluctuations in the nationwide and regional demand for
housing and for automobiles; the capacity of the mortgage banking industry and
the non-prime automobile financing industry and the Company's customers in those
respective industries to satisfy consumer demand for respectively, mortgage
loans and automobiles; demographic changes; competition; the loss of any
significant customers; changes in business strategy or development plans;
availability and successful integration of acquisition candidates; availability,
terms and deployment of capital; quality of management; business abilities and
judgment of personnel; availability of qualified personnel; changes in, or the
failure to comply with, government regulations; and other factors discussed in
this Prospectus. See "Risk Factors."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,750,000
Units offered by the Company hereby at the public offering price of $ per
Unit, are estimated to be $ ($ if the over-allotment option
granted to the Underwriters is exercised in full) after deducting the
underwriting discounts and commissions, the Underwriters' ull) non-accountable
expense allowance and the other estimated expenses of this Offering. The ull)
Company expects to use the net proceeds, as follows:
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
mortgage warehouse lending operations (1) (4) $ %
direct financing of automobile loans and leases (2) 2,000,000 %
working capital (3) 500,000 %
--------- -----
$ 100.0%
========= =====
</TABLE>
- ----------
(1)The Company may allocate a portion of the proceeds of the Offering for use in
connection with its strategic goal of expanding into other specialty finance
niche activities through acquisitions or joint ventures. To the extent that such
expansion activities will require the Company to expend cash, the source thereof
will be the funds employed in the Company's mortgage warehouse lending
operations. Accordingly, the funds employed by the Company in such mortgage
warehouse lending activities will be concomitantly reduced. See "Business --
Strategy."
(2)The Company may lend up to $2,000,000 to Trans Lending to engage in the
direct financing of automobile loans and leases. Until such time as the
Company's management decides whether to enter into one or more loan transactions
with
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<PAGE>
Trans Lending for such purpose, the $2,000,000 shall be used by the Company in
its mortgage warehouse lending operations.
(3)The Company may use up to $500,000 to pay rent and/or other operating
expenses. Until such time any portion of such proceeds is so used, said
$500,000, or the unapplied balance thereof, shall be employed by the Company in
its mortgage warehouse lending operations.
(4)The allocation of the net proceeds of this Offering set forth above
represents the Company's best estimate of its intended uses thereof based upon
Management's present understanding of the Company's financial condition and
business prospects. If the Company deems it necessary or advisable to enter into
other specialty financial service sectors, primarily through acquisitions of
businesses, or joint ventures with businesses or executives having extensive
experience in the targeted specialty, it may reallocate up to $1,000,000 of the
proceeds currently earmarked for use in its mortgage warehouse lending
activities for such uses.
If the Representative exercises the over-allotment option in
full, the Company will realize additional net proceeds of approximately $, which
will be added to the Company's working capital and used for general corporate
purposes. The proceeds, if any, from the exercise of the Class A Warrants and
any outstanding warrants and options will be added to working capital and used
for general corporate purposes.
26
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company
as of September 30, 1996. The Proforma - Offering information includes and
accounts for the effect of the anticipated results of the completion of the sale
of 3,750,000 Units offered hereby (not including 562,500 Units subject to the
Underwriters' over-allotment option) at an offering price of $ per Unit (after
deduction of the estimated underwriting discounts and commissions and expenses
of the Offering).
<TABLE>
<CAPTION>
(in 000's)
Offering Proforma
Sept. 30, 1996 Adjustments Offering
-------------- ----------- ---------
<S> <C> <C> <C>
Debt Obligations:
Loans payable, Mortgage
Warehouse $1,582 $ --- $1,582
Total Debt Obligations (1) 1,582 --- 1,582
===== ==== =====
Common Stock (1) - $.01
par value, authorized 20,000,000,
issued and outstanding:
1,442,272 shares at Sept. 30,
1996: 5,xxx,xxx shares
- Proforma Offering 15 38 53
Preferred Stock - $.01 par value,
authorized 5,000,000 shares,
issued and outstanding at Sept. 30,
1996: 0
Additional paid-in capital (2) 10,563
Accumulated Deficit (8,321) --- (8,321)
----- ----- -----
Total Shareholders Equity 2,257
----- ----- -----
Total Capitalization $3,839 $ $
===== ==== =====
</TABLE>
- ----------
(1) Does not include additional non-debt related liabilities of approximately
$232,000.
(2) Net equity impact of issuance of 3,750,000 Units at $ per Unit.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock.
Furthermore, the provisions of the plan of reorganization pertaining to
Pioneer's emergence from bankruptcy, prohibit it from paying any dividends to
its common
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<PAGE>
shareholders until the sum of $1,350,000 shall have been paid to its
pre-bankruptcy unsecured creditors, provided, however, that such prohibitions
shall not be applicable in the event that 50% of the proceeds in excess of
$5,000,000 derived from any public offering of securities made by it shall be
utilized for payment of said $1,350,000. The proceeds which the Company derived
from the IPO did not exceed said $5,000,000 threshold. The proceeds which the
Company shall derive from this Offering will exceed such threshold. The Board of
Directors does not anticipate that it will use any portion thereof to pay any
part of said $1,350,000 obligation. Accordingly, the Board of Directors does not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
Upon satisfaction of the foregoing payment obligation, the payment of future
cash dividends on the Common Stock will depend on such factors as earnings
levels, anticipated capital requirements, the operating and financial condition
of the Company and other factors deemed relevant by the Board of Directors. See
"Business - Pioneer's Chapter 11 Bankruptcy Proceedings" and "Description of
Securities."
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock began trading on the Nasdaq SmallCap
Market on August 14, 1996. The ranges of the high, low and closing prices of the
Common Stock on a quarter-by-quarter since said date through December 20, 1996
were, as follows:
<TABLE>
<CAPTION>
Quarter-End High Low Close
----------- ---- --- -----
<S> <C> <C> <C>
Sept. 30, 1996 $4.875 $2.375 $2.75
Dec. 20, 1996 $2.75 $1.38 $1.63
</TABLE>
As of December 20, 1996, there were approximately 500 beneficial
holders of the Company's Common Stock.
The Company has not paid any dividends on its Common Stock, and
has no plans to do so in the foreseeable future. See "Dividend Policy."
28
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
As of June 14, 1993, when the Company commenced active operations
following its emergence from Chapter 11 bankruptcy proceedings, it had an
available credit line of $1 million from one source, UMB. The Company's lines of
available credit were subsequently increased to an aggregate of $2.35 million as
of March 31, 1995 and $4.2 million as of June 1996. Substantially all of the
business conducted by the Company during the years ended March 31, 1994 and 1995
was with one active mortgage banking company who had a credit line approved by
the Company in the amount of $2 million. In April 1995, the Company discontinued
that customer's credit line when it failed to comply with the Company's
underwriting requirement to provide audited financial statements for the year
ended December 31,1994.
As a result of the death of the Company's former Chairman and
Chief Executive Officer, the Company did not engage in any substantial mortgage
warehouse lending activities from April 1995 through August 1995. During the
period from August 1995 through November 1995, the Company developed customer
relationships with three new mortgage banking companies, and from August 1995
through March 1996, the Company generated approximately $20.4 million in
mortgage warehouse lending volume from those new customers. Between April 1,
1996 and September 30, 1996 these three customers generated approximately $26.8
million in warehouse loan volume, a 31% increase over the fiscal year ended
March 31, 1996. During September 1996, the Company added a fourth customer which
received a $5 million line of credit.
The Company is in the process of evaluating the creditworthiness
of several other potential customers. Although the Company will seek to conduct
business in the future with a greater number of mortgage banking customers, and
thereby reduce the risks attendant in relying upon a small number of sources to
support its business, no assurance can be given that it will receive such
applications, or that such applicants will thereafter engage in a large enough
volume of mortgage warehouse lending transactions to sustain the Company's
operations. The cessation of business of any of the Company's active customers
or the inability of its customers to provide the Company with an increased level
of loan volume could materially adversely affect the Company's ability to
generate sufficient revenues to operate profitably and to continue to meet its
cash obligations in future periods.
During the fiscal years ended March 31, 1995 and 1996, the
Company incurred net losses of $589,000 and $480,000, respectively. Such losses
were partly attributable to noncash expenses (primarily depreciation,
amortization, debt discount expenses and deferred consulting agreement expenses)
totalling $329,000
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<PAGE>
and $164,000 during 1995 and 1996, respectively, and the inability of the
Company to generate a sufficient volume of loan transactions with its customers.
During the six month periods ended September 30, 1995 and 1996,
the Company incurred net losses of $229,043 and $246,369 respectively. Such
losses were partly attributed to noncash expenses (primarily depreciation,
amortization and debt discount expenses) totaling $98,267 and $110,936 during
the 1995 and 1996 periods, respectively, and the inability of the Company to
generate a sufficient volume of loan transactions with its customers.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1995 COMPARED WITH YEAR ENDED MARCH 31, 1996
REVENUES. Due primarily to the death of Uri Lieber, the
lessening, and ultimate cessation of mortgage lending operations, and the
restructuring of the Company's management and operations which took place during
the first half of the fiscal year ended March 31, 1996, the Company generated
only $97,190 in revenues, a 43.5% decrease from its fiscal year 1995 revenues.
Such revenues were generated by funding 201 loans totalling $20,501,107 with
three customers. The interest income component of such revenues amounted to
$76,957, a 22.6% decrease over the interest income generated during the fiscal
year ended March 31, 1995. Such decrease was due to the Company's operational
inactivity during the first half of the fiscal year. The processing fee
component of such revenues amounted to $15,733, which represented a 76% decrease
from the results of the prior fiscal year. Such decrease was due to the smaller
volume and aggregate dollar value of loans financed.
DIRECT COSTS. The Company's direct costs consist of the interest
and other charges which it must pay to its revolving credit line providers and
to the IPO Bridge Financing Lenders. During the fiscal year ended March 31,
1995, the Company's interest expense and other bank charges paid to providers of
its revolving lines of credit amounted to $68,552. During this period, the
Company financed a total of 222 loans aggregating $26,222,221 in weighted
average principal amounts of approximately $118,118 for an average duration of
12 days per borrowing, which amounts include 101 loans funded through bank
borrowings aggregating $11,454,426 in weighted average principal amounts of
$113,410 for an average duration of 11 days. During the fiscal year ended March
31, 1996, the Company's interest expense and other bank charges paid to
providers of the Company's revolving lines of credit amounted to $95,408. During
this period, the Company financed a total of 201 loans aggregating $20,501,107
in weighted average principal amounts of approximately $101,996 for an average
duration of 15 days per borrowing, which amounts include 152 loans funded
through bank borrowings aggregating $16,507,308 in weighted average principal
amounts of $108,601 for an average duration of 15 days. Such decrease in loan
activity was due to the Company's above-mentioned operational inactivity during
the first half of the fiscal
30
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<PAGE>
year ended March 31, 1996. The 28% increase in interest expense which occurred
notwithstanding the decrease in lending activity was due primarily to an
increase in use of the Company's bank credit facility, an increase in the length
of time when such loans were outstanding from an average of 12 days to an
average of 15 days and a higher weighted average prime rate during the fiscal
year ended March 31, 1996 over the average weighted prime rate of fiscal 1995.
Interest expense on the IPO Bridge Financing in fiscal 1995 and
1996 amounted to $142,748 and $79,231, respectively, consisting of interest
payable of $24,000 and $21,163, respectively, debt discount amortization of
$102,748 and $55,244, respectively, and deferred issuance cost amortization of
$16,000 and $2,824, respectively. In February, 1996, the Company paid the sum of
$122,492 in full satisfaction of its indebtedness to two of the IPO Bridge
Financing Lenders. The Company's IPO Bridge Financing obligations were be paid
in full upon closing of its IPO.
OPERATING EXPENSES. The Company's operating expenses of $544,462
during the fiscal year ended March 31, 1995 consisted primarily of salaries and
benefits paid or accrued to Uri Lieber and Glenda Klein ($159,427), depreciation
and amortization ($110,498), the primary component of which is the Collateral
Tracking System software ($91,327), accounting and legal fees ($71,010),
amortization of a consulting agreement ($96,000), telephone ($22,352), office
rent ($23,803) and miscellaneous expenses ($61,372 in the aggregate). The
Company's operating expenses of $433,709 during the fiscal year ended March 31,
1996 consisted primarily of salary and benefits paid to Glenda Klein and other
staff ($134,555), depreciation and amortization ($101,300), the primary
component of which is the Collateral Tracking System software ($92,312),
accounting and legal fees (114,382), telephone ($19,782), office rent ($11,609)
and miscellaneous expenses ($52,081 in the aggregate). It is anticipated that
aggregate operating expenses will increase less than proportionately as staffing
and office space is increased to manage the greater number of mortgage warehouse
loan transactions that management believes the Company will be implementing with
the proceeds of the IPO and this Offering. See "Business - Employees" and
"Business - Facilities."
NET LOSS. During the fiscal years ended March 31,1995 and 1996,
the Company incurred a net loss of $589,155 and $479,803, respectively. The
limited nature of the lending capital which was available to the Company,
coupled with the non-cash expenses which it incurred during each of such years
(primarily depreciation, amortization, debt discount and deferred consulting
agreement expenses) totalling $328,965 and $164,080, respectively, were
substantial contributing factors to such losses. The inability to attract
customers and the higher loan volume which they would generate which were caused
by the Company's lack of sufficient warehouse loan credit availability also
negatively impacted net income for the above-mentioned periods. In addition, the
Company has not historically incurred salary expense at a level which equals the
current combined compensation
31
<PAGE>
<PAGE>
arrangements with its Vice President and Chief Financial Officer, and with its
Chief Executive and Chief Operating Officers. Had such arrangements been in
place during the years ended March 31, 1995 and 1996, the Company would have
incurred additional salary expense of approximately $44,000 and $110,000 in 1995
and 1996, respectively, which would have increased the Company's net loss to
approximately $633,000 and $590,000, respectively, for such periods. See
"Management - Employment Agreements."
CASH FLOWS FROM OPERATIONS. The Company generated negative cash
flows from operations of approximately $194,000 and $253,000 for the fiscal
years ended March 31, 1995 and 1996, respectively. Such negative cash flows are
primarily a result of the Company's inability to generate a sufficient level of
loan volume from its customers which is further negatively impacted by the
limited funds available to the Company for use in its mortgage warehouse
activities (approximately $4.2 million in lines of credit and $150,000 in net
liquid assets). In order to generate positive cash flows from operations, the
Company will need to increase its loan funding capacity and correspondingly
increase its loan revenues and loan volumes.
The Company believes that the addition of the $1,970,466 portion
of the proceeds of the IPO which it is employing in its mortgage warehousing
operations will enable it to increase its base of customers and concomitantly
increase its loan volume to a level sufficient to generate positive operating
cash flows and net income. The infusion of such proceeds increased the Company's
net worth to approximately $2,600,000, increased its cash balance to
approximately $2,300,000, and provided it, without effecting any changes in its
business operations, with sufficient cash to support such operations during the
12 month period following the closing of the IPO.
REALIZABILITY OF LONG-LIVED ASSETS. Management has evaluated the
realizability of its long-lived assets (primarily furniture and equipment and
proprietary computer software) having a net book value of $217,990 at March 31,
1996 in accordance with the provisions of Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of."
SIX MONTH PERIOD ENDED SEPTEMBER 30, 1995 COMPARED WITH THE SIX MONTH
PERIOD ENDED SEPTEMBER 30, 1996
REVENUES. During the six month period ended September 30, 1996,
revenues increased to $129,723 compared to $11,392 for the six month period
ended September 30, 1995. Such revenue was generated from the three customers
added during the period August, 1995 through November, 1995 and the fourth
customer added September 20, 1996. 331 loans totaling $26,796,000 were funded
during the six month period ended September 30, 1996, which represented 65% and
31% increases,
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<PAGE>
<PAGE>
respectively, in the total number of loans and the dollar volume of loans funded
during the entire fiscal year ended March 31, 1996. The interest and processing
fee component of such revenues reported for the six months ended September 30,
1996 amounted to $103,280 and $26,443, respectively, compared to $6,452 in
interest and $4,940 in processing fees for the six months ended September 30,
1995.
DIRECT COSTS. The Company's direct costs consist of the interest
and other charges which it must pay to its revolving credit line providers and
the interest which it paid to the IPO Bridge Financing Lenders. During the six
month periods ended September 30, 1995 and 1996, the Company's interest expense
and other bank charges paid to revolving line of credit providers amounted to
$9,051 and $120,887, respectively. Due primarily to the death of the Company's
former Chairman and Chief Executive in March 1995, the lessening, and ultimate
cessation of mortgage lending operations which took place by reason thereof, and
the restructuring of the Company's management and operations which took place
during the first half of the fiscal year ended March 31, 1996, the Company
financed a total of 17 loans totaling $1,233,236 in the weighted average
principal amount of $72,543 for an average duration of 14 days per borrowing
during the six month period ended September 30, 1995. During the six month
period ended September 30, 1996, the Company financed a total of 331 loans
totaling $26,796,000 in the weighted average principal amount of $80,955 for an
average duration of 14 days per borrowing, which amounts include 277 loans
funded through bank borrowings aggregating $22,349,000 in the weighted average
principal amount of $80,682. Such increase in loan activity was due to the
Company's above mentioned addition of four customers. The increase in interest
expense and bank fees was due to the increase in loan funding operations and the
use of the Company's bank credit facility.
Interest expense on the IPO Bridge Financing for the six month periods
ended September 30, 1995 and September 30, 1996 amounted to $14,824 and $4,885,
respectively, and debt discount amortization thereon during the same periods
amounted to $42,744 and $37,500, respectively. In February, 1996, the Company
paid the sum of $122,492 in full satisfaction of its indebtedness to two of the
IPO Bridge Financing Lenders. Upon the closing of the IPO, the remaining IPO
Bridge Financing obligation of $128,356 (which included $28,356 in accrued
interest) was retired in full.
OPERATING EXPENSES. The Company's operating expenses of $193,870
during the six month period ended September 30, 1995 consisted primarily of
depreciation and amortization of $50,650, the primary component of which is the
Collateral Tracking System ($46,156); salaries and benefits to the Company's
former Chairman and Chief Executive Officer and to its Senior Vice President
($66,859); legal and accounting fees ($25,203); telephone ($8,853), office rent
($5,805), temporary staff ($15,776) and miscellaneous expenses ($20,724 in the
aggregate). The Company's operating expenses of $218,379 during the six month
period ended September 30, 1996 consisted primarily of depreciation and
amortization of ($50,650),
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<PAGE>
the primary component of which is the Collateral Tracking System ($46,156),
salary and benefits to the Company's Chief Executive, its President, its Senior
Vice President and office staff ($52,821); accounting and legal fees ($26,196);
telephone ($11,144); office rent ($5,805); temporary staff ($23,849) and
miscellaneous of ($47,914). The increase in such expenses during the six month
period ended September 30, 1996 as compared to the comparable period during
1995, was due to the increase in lending activity and the increased costs
associated with the professional, financial consulting and similar services
which the Company has incurred by reason of its change in status from a
privately owned to a publicly held company.
NET LOSS. During the six month periods ended September 30, 1995
and 1996 the Company incurred net losses of $229,043 and $246,369, respectively.
Such losses were primarily due to the Company's inability during the former
period to attract additional warehouse lines of credit which it needs in order
to operate profitably, and the Company's inability to improve such lines of
credit during the latter period while it was seeking to obtain additional credit
lines from approximately 20 banks and other financial institutions following the
completion of the IPO. Such non-cash expenses as depreciation, amortization and
debt discount totaling $98,267 and $110,936, respectively, were also
contributing factors to such losses.
CASH FLOWS FROM OPERATIONS. The Company generated negative cash
flows from operations of $157,542 for the six month period ended September 30,
1995 which resulted primarily from a loss from operations of $229,043. The
negative cash flow from operations of $494,292 for the six month period ended
September 30, 1996 resulted primarily from a decrease in accounts payable and
accrued expenses ($150,277), an increase in other assets of ($191,900) and the
loss from operations of ($246,369).
In order to operate profitably, the Company needs to increase its
warehouse loan lines of credit beyond its current level of $4,000,000.
Accordingly, immediately after the closing of its IPO, the Company began to
focus its efforts on acquiring such additional credit lines. In that regard, the
Company has sought warehouse lending lines of credit from approximately 20
different banks and financial institutions. Several of such lenders have
declined to extend credit to the Company for a variety of reasons including, but
not limited to, the relatively small size of the Company's asset and equity
bases in relation to such lenders' lending parameters. As of the date of this
Prospectus, the Company is maintaining dialogues with approximately eight
financing sources who have expressed an interest in considering the Company's
application for financing, and it intends to make applications to additional
warehouse line of credit sources. Although the Company believes that the
addition of the $1,970,466 portion of the proceeds of the IPO which it is
employing in its mortgage warehousing operations will enable it to effect the
needed expansion of its credit facilities by as much as $10 - 20 million, and
thereby achieve profitability through the ability to increase its customer base
and aggregate dollar loan volume
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which such additional lending capacity will permit it to undertake, no
assurances can be given in that regard.
REALIZABILITY OF LONG-LIVED ASSETS. Management has evaluated the
realization of its long-lived assets (primarily furniture and equipment and
proprietary computer software) having a net book value of $175,089 at September
30,1996 in accordance with the provisions of Statement of Financial Accounting
Standards No. 121 "Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of." Based on such evaluation and taking into
consideration the positive cash flows and earnings the Company believes it will
be able to generate in future periods, management does not believe that there is
an impairment of its long-lived assets at September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
On July 31, 1995, the Company paid UMB a $20,000 renewal fee in
connection with its consummation of a thirteen month extension (due to expire
August 31, 1996) of its $2,000,000 warehousing line of credit. On November 9,
1995 and February 23, 1996, respectively, the Company paid an additional $4,167
and $7,917 in consideration for the extension of said line of credit to
$2,500,000 and then to $4,000,000. In connection therewith, the Company also
granted to UMB a five year option to purchase up to 41,271 shares of Common
Stock at an exercise price of $5.50 per share. Said option shall expire with
respect to any unexercised portion thereof in the event that the Company's
credit line with UMB shall not be renewed or extended. See "Description of
Securities - UMB Option."
On September 10, 1996, the Company paid UMB a $40,000 renewal fee
in connection with the extension of its credit facility through August 31, 1997.
The Company's primary sources of the capital which it employs in its warehouse
lending operations are borrowings under its UMB line of credit and its net
equity capital funds of approximately $2,072,000.
PIONEER'S CHAPTER 11 BANKRUPTCY PROCEEDINGS. In April 1993,
Pioneer emerged from bankruptcy pursuant to a plan of reorganization, as
subsequently modified (the "Plan"), which provided, among other things, that
each unsecured creditor would receive a distribution equal to such creditor's
pro rata share of $150,000, plus a non-interest bearing unsecured note (the
"Note"). Pursuant to the terms of the Notes, if at the close of the fiscal year
ended March 31, 1995, the Company had any net income (net income, as reported in
the Company's audited financial statements, increased by any deductions taken
for depreciation or amortization, and decreased by certain interest earnings) in
excess of $400,000, each holder of a Note would have been entitled to receive
distributions equal to such creditor's pro rata share of 20% of the net income
in excess of said $400,000. However, the Company had no net income during said
fiscal year. Beginning with the close of the fiscal year ending March 31, 1996,
and for all fiscal years thereafter, each holder of a Note shall be entitled to
receive a distribution equal to such
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creditor's pro rata share of 20% of the net income available for note payments,
if the net income for any such fiscal year exceeds $1,300,000. Holders of the
Notes shall continue to receive payments under the Notes, consistent with the
foregoing terms, until an aggregate of $1,350,000 is paid under the Notes. At
such time, the Notes shall be deemed fully satisfied and discharged and the
Company shall have no other or further obligations thereunder. The Company was
not required to make any payments to the Note holders with respect to the fiscal
year ended March 31, 1996.
The Plan, as assumed by operation of law by the Company at the
time of consummation of the Merger, further provides that, until such time as
said $1,350,000 has been paid in full, no dividends may be declared or paid to
the holders of any class of the Company's common stock, it may not redeem,
purchase or otherwise acquire for value any of its capital stock and it may not
return any of its assets or make any distribution of assets to any of its
shareholders, provided, however, that such prohibitions shall not be applicable
in the event that 50% of the proceeds in excess of $5,000,000 derived from any
public offering of securities made by the Company shall be utilized for payment
of said $1,350,000. The proceeds which the Company derived from the IPO did not
exceed said $5,000,000 threshold. The proceeds which the Company shall derive
from this Offering will exceed such threshold. The Board of Directors does not
anticipate that it will use any portion thereof to pay any part of said
$1,350,000 obligation. Therefore, it is not expected that the Company will be
undertaking any of the aforementioned currently prohibited actions in the
foreseeable future.
Accordingly, until such time as the Notes have been paid in full,
the Company will be obligated, to the extent hereinabove described, to pay to
Pioneer's pre-Chapter 11 unsecured creditors an aggregate of $1,300,000 of the
income that otherwise would be available for use in connection with the
Company's operations, or for distribution to its shareholders. No holder of any
of the Notes was affiliated with Pioneer, or is affiliated with the Company.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 109, Accounting for Income
Taxes ("FAS No. 109") which requires the use of an asset and liability approach.
The asset and liability approach computes deferred taxes based on expected
future tax consequences to be in effect when timing differences reverse, whereas
the deferred method utilizes the tax rate in effect at the time of the
origination of the timing differences. The Company adopted FAS No. 109 in its
current fiscal year. Implementation of FAS No. 109 did not have a material
effect on the Company's financial position and results of operations.
In January 1995, the Company adopted FAS 114, "Accounting by a
Creditor for Impairment of a Loan," FAS 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" and FAS 119,
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"Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments." Adoption of these new accounting and disclosure standards did not
have a material effect on the Company's financial position or results of
operations.
IMPACT OF IPO ON NET OPERATING LOSS CARRYFORWARDS
As of September 30, 1996, the Company had available net operating
loss carryforwards of approximately $2.3 million. As a result of changes in the
Company's common stock ownership, the Company is subject to annual limitations
pertaining to the use of such operating loss carryforwards. The Company expects
that the amount of net operating loss carryforwards which may be utilized in any
future period will be limited to an amount not to exceed approximately $100,000
per year. Management believes that the losses that it has incurred since the
Merger (aggregating $896,000) are not subject to these limitations. The
Company's ability to use such net operating loss carryforwards is dependent upon
its ability to generate taxable income in the future. See Note 6 of Notes to
Pioneer's Financial Statements.
THE MERGER
In November 1994, PCF and Pioneer consummated the Merger pursuant
to an Agreement and Plan of Merger (the "Merger Plan") which provided, among
other things that (a) Pioneer would merge with and into PCF; (b) the Company, as
the surviving constituent of the merger would change its name to Pioneer
Commercial Funding Corp.; (c) upon consummation of the Merger, the persons who
were serving as the directors and officers of Pioneer would serve in the same
capacities as the directors and officers of the Company (see "Management"); and
(d) the Merger would be effected by issuing one share of the Company's Common
Stock in exchange and extinguishment of each share of Pioneer's common and
preferred stock then held by its shareholders. Upon consummation of the Merger,
the Company exchanged, on a share for share basis, 814,126 shares of its Common
Stock for the 318,017 shares of Pioneer's Class A common stock, the 333,311
shares of Pioneer's Class B common stock and the 162,798 shares of Pioneer's
Class A preferred stock which had been issued and outstanding immediately prior
to the Merger.
Further in accordance with the Merger Plan, all property, rights,
privileges, powers, contracts, and franchises and every other interest possessed
by Pioneer in any capacity became the property of the Company, all rights of
creditors and all liens upon any property of Pioneer were preserved unimpaired
and all debts, liabilities and duties of Pioneer attached to the Company and
became enforceable against it to the same extent as if said debts, liabilities,
and duties had been incurred or contracted by the Company.
The foregoing discussion is a summary of the principal terms of
the Merger Plan. It does not purport to be complete, and it is qualified in its
entirety by
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reference to the Merger Plan, a copy of which is on file as an exhibit to the
Company's Registration Statement of which this Prospectus forms a part. See
"Available Information."
BUSINESS
GENERAL OVERVIEW
The Company is a specialized niche financial services company
currently engaged in (i) residential mortgage warehouse lending and (ii)
origination of consumer automobile loan and lease financings through a recently
acquired 50% interest in Trans Lending. Trans Lending presently represents AVCO,
ACC and Norwest who have agreed to purchase Contracts acquired by Trans Lending
from approximately 60 dealers located in Florida. The Company will seek to enter
other specialty financial service sectors primarily through acquisitions of
businesses or joint ventures with businesses or executives having extensive
experience in the targeted specialty.
The Company is a mortgage warehouse lender providing short-term
(generally 10 - 30 day) financing to small to medium sized mortgage bankers who
hold ("warehouse") the mortgage loans they originate pending the nonrecourse
sale of such loans to institutional investor agencies in the secondary mortgage
market such as GNMA, FNMA, and FHLMC and/or accredited financial institutions
such as banks, thrifts, insurance carriers and large mortgage bankers.
STRATEGY
The Company's multi-pronged growth strategy to maximize long-term
shareholder values is:
Expanding the scope of the Company's mortgage warehouse
lending activities by increasing its available lines of credit and the number of
mortgage bankers served.
Developing and expanding Trans Lending's automobile
financing activities through its representation of a greater number of banks and
other institutional purchasers of auto loans, and through the establishment of
Contract acquisition relationships with a greater number of franchised and
independent used car dealerships.
Expanding into other specialty finance niche activities
primarily through acquisitions of businesses, or joint ventures with businesses
or executives having extensive experience in the targeted specialty.
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Obtaining commitments from Arthur H. Goldberg, the
Company's Chief Executive Officer, and Elie Housman, the Company's President and
Chief Operating Officer, to devote substantial portions of their time to the
affairs of the Company.
MORTGAGE WAREHOUSE LENDING INDUSTRY OVERVIEW
General. Mortgage bankers (i) originate mortgage loans, as direct
lenders; (ii) act as intermediaries in the subsequent marketing and sale of
mortgage loans in the secondary mortgage market; (iii) warehouse mortgage loans;
and (iv) service mortgage loans.
Historically, mortgage banks have originated approximately 20% -
25% of all mortgage loans. However, according to the U.S. Department of Housing
and Urban Development, due to changes during the late 1980's and early 1990's in
the composition and liquidity of the savings and loan industry (the historic
market leader in mortgage loan originations), and the regulatory tightening of
commercial banking industry capital requirements, mortgage banks have increased
their share of the mortgage loan origination market to approximately 50%.
Mortgage warehouse lending transactions are collateralized
principally by its receipt of (i) an instrument of assignment of the original
mortgage loan note endorsed in blank by the primary lender; (ii) a certified
copy of the mortgage or deed of trust and an instrument of assignment thereof
executed in blank by the primary lender; and (iii) an executed commitment from
an Agency to purchase the mortgage loan at a specific price and time.
The Secondary Mortgage Market. After World War II, the United
States Government created three for-profit entities to stimulate the
availability of mortgage financing for residential dwellings, FNMA, FHLMC and
GNMA. Prior to the creation of these Agencies, commercial and savings banks made
mortgage loans only to the extent they could retain such loans in their own
portfolios or sell them to private investors. These Agencies created the
secondary mortgage market by issuing and guaranteeing mortgage-backed fixed
income securities to the investing public.
The Agencies obtain their funds by offering long-term bonds to
institutional investors which are secured by the underlying mortgages purchased
by the Agencies, and which pass through to the bondholders the mortgage
principal and interest payments received by the holders of such mortgages.
Additionally, inasmuch as GNMA is an organ of the United States government, its
bonds are also backed by the full faith and credit of the U.S. Treasury. The
Agencies rely on independent companies to service the loans they purchase. Often
the servicing agent is the same mortgage bank from whom an Agency purchases a
mortgage loan. Such services include collecting interest and principal payments
on a monthly basis
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and insuring that property taxes and property insurance premiums are paid as and
when they become due.
The Agencies purchase mortgages pursuant to commitments which
they issue to mortgage banks and other mortgage loan originators who have been
previously screened by the Agency and qualified as an Agency-approved mortgage
lender. The most prevalent commitment provides for the purchase by an Agency of
"standard pools" of mortgage loans in blocks ranging from $1 million to $5
million. That pool of mortgage loans, either separately or when aggregated with
other similar pools purchased by an Agency, becomes the underlying collateral
for the fixed income, so-called "mortgage-backed securities" that are issued and
guaranteed by the Agency.
During the five year period between 1991 and 1995, the dollar
volume of residential mortgage loans purchased by the FHLMC, FNMA, GNMA, VA and
FHA was, as follows:
<TABLE>
<CAPTION>
FHLMC FNMA GNMA VA FHA Totals
----- ---- ---- -- --- ------
(Billions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
1995 $ 93.386 $167.048 $ 72.866 N/A $ 43.800 $382.120
1994 124.246 192.011 111.215 N/A 94.900 522.342
1993 229.706 313.751 138.000 N/A 102.200 783.657
1992 191.126 75.905 81.900 $24.500 50.900 424.331
1991 99.965 37.202 62.600 15.300 47.800 262.867
</TABLE>
- ------------------------------
Source: Reports of FHLMC and FNMA for the years 1991 - 1995.
Mortgage bankers desiring to originate and sell mortgage loans to
the Agencies are required to produce such loans in accordance with very specific
Agency guidelines and criteria. As of the date of this Prospectus, the loan
limits imposed for the mortgage loans on owner-occupied residential properties
that the FHLMC, FNMA, GNMA, VA and FHA will purchase are, as follows:
<TABLE>
<CAPTION>
FHLMC(1) FNMA(1) GNMA(2) VA(2) FHA(1)
-------- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C>
Single Family $207,000 $207,000 $185,000 $185,000 $155,250
2 Units 264,750 264,750 198,550
3 Units 320,050 320,050 240,000
4 Units 397,800 397,800 298,350
</TABLE>
- -------------------------
Source: Reports of FHLMC and FNMA for the years 1991 - 1995.
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(1) The loan limits imposed by FHLMC, FNMA and FHA are generally applicable
throughout the United States.
(2) The loan limits set forth herein are those imposed by GNMA and the VA in
regions of the United States such as Southern California and Metropolitan New
York which they have designated as "High Cost Areas."
THE COMPANY'S MORTGAGE LENDING OPERATIONS
The Company provides financing for small to medium sized mortgage
bankers possessing at least $350,000 of capital who have been approved as a
seller or servicer of mortgage loans by one or more of the Agencies, and who
have been granted a mortgage warehouse line of credit by the Company after
satisfying its own financial, business and creditworthiness standards. The
mortgage loans for which the Company provides such financing are primarily
single family residences and other owner occupied residential properties
including one to four unit properties in which the owner is the occupant of at
least one of such units.
In a mortgage warehouse loan transaction, the Company's mortgage
banking customer will first purchase a funding commitment from an Agency for a
fee which is usually a fraction of a percent of the commitment amount. Then, the
Company's customer will seek to fill the commitment through the submission of
one or more loans to the Agency which conform not only to the Agency's
established loan criteria, but also to the commitment's rate and delivery date.
These commitments can take three forms: individual loan, small pool, and
standard pool. An individual loan commitment is an agreement by an Agency, with
a usual term of no longer than two weeks, to purchase a single whole loan of a
specified amount on or before a specified date at a specified rate. A small pool
commitment is an agreement by an Agency, with a usual term of no longer than
three weeks, to purchase an unrestricted number of whole loans of a specified
total amount on or before a specified date at a specified rate. A standard pool
commitment is an agreement by an Agency, with a usual term of no longer than
four weeks, to purchase an unrestricted number of whole loans of a specified
total amount of no less than $1 million on or before a specified date at a
specified rate.
In general, the Company's customers do not possess sufficient
capital or bank lines of credit to fully fund loans they originate during the
period of time that transpires between the date on which a loan is closed and
the Agency Commitment Date. Accordingly, the Company provides its customer with
a line of credit that is collateralized by each loan that it funds for its
customer, which line of credit enables the customer to warehouse the loan for
the period of approximately 10 to 30 days that typically occurs from the closing
of the loan until the Agency Commitment Date. During this period, the Company
holds the loan documents (generally, the promissory note and the first deed of
trust or mortgage securing the note), and upon its delivery of the loan
documents to the Agency, the Company is paid the aggregate amount of the loan.
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The Company derives its revenues from the transaction-based fees
that it charges its customers in connection with the loans it funds on their
behalf, and the interest rate spread (generally 0.75%) between the yield paid by
the Company to its financial sources for its borrowed funds, and the interest
rate charged by it for mortgage loans that it funds on behalf of its mortgage
banker customers.
Transaction fees are determined pursuant to a schedule based upon
the length of time between the funding of a loan by the Company and
reimbursement of same by an Agency. In each case, the Company's customer is
charged an initial fee of $70.00 to $90.00 upon funding of a loan. If the loan
is repaid within 30 days of the funding date, no additional fee is usually
earned by the Company on such loan. If such loan is not repaid within such
period, its customer must pay an additional fee of $150.00.
In the event that the Company disburses funds to a title company
in preparation for closing of a loan which thereafter does not close, only the
initial fee, plus interest for the one to three days that it normally takes
before such funds are returned by the title company to the Company are charged
by it to its customer.
Generally, the Company's mortgage warehouse loan customers pay
interest for the funds they borrow from it at a rate that ranges from one
quarter of one percentage point to one percentage point over the UMB Prime Rate
(as defined below).
THE COMPANY'S UMB LINE OF CREDIT
In accordance with the $4,000,000 revolving line of credit and
security agreement between the Company and UMB, as amended (the "UMB
Agreement"), the Company pays a fee of $30.00 per loan plus interest on advances
made under its credit line at a rate which is one percent above the highest
"prime rate" of interest, quoted from time to time by the Wall Street Journal as
the "base rate on corporate loans at large U.S. money center commercial banks"
(the "UMB Prime Rate"). As collateral security for its indebtedness to UMB under
said agreement, the Company has granted to UMB a security interest in various
assets including, but not limited to, all promissory notes acquired by the
Company with respect to any loan funded by it with moneys advanced under its UMB
credit line and all mortgages or other forms of collateral security obtained by
the Company in connection with the funding of such loans.
THE COMPANY'S MORTGAGE BANKING CUSTOMERS
During the fiscal year ended March 31, 1995, the Company did
business with three mortgage banking customers, Premium Mortgage Company
("Premium"), National Mortgage Banking Group, Inc. ("National") and The Mortgage
Group, Inc. ("TMG"). Premium is located in, and originates mortgage
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loans in, California. National is located in, and originates mortgage loans in
Southern California. TMG is located in Virginia, and originates mortgage loans
in Virginia, Washington, D.C. and California. 82.25% of the Company's warehouse
lending business between the Inception Date and March 31, 1995 was conducted
with Premium. The Company suspended its customer relationship with Premium in
April 1995 due to Premium's failure to comply with the Company's underwriting
criteria.
Between April 1, 1994 and January 1, 1995, the date when National
ceased doing business, the Company funded four loans totalling $471,259 for
National. The average size of such loans was $117,815. The Company commenced
business operations with TMG on August 10, 1994. In January 1995, TMG began
processing its warehouse loan credit needs through another provider, and ceased
doing business with the Company. During the six month period when TMG was an
active customer, the Company funded 63 loans for TMG totalling $7,838,277. The
average size of such loans was $124,417.
In August 1995, the Company commenced business operations with
Windtree, and from said date through March 31, 1996, Pioneer funded 81 loans
with said customer totaling $7,249,533 The average size of such loans was
$89,500. On September 26, 1995 the Company commenced business operations with
1st Financial and funded 49 loans totaling $3,529,393 with said customer through
March 1996. The average size of such loans was $72,028. On November 9, 1995 the
Company commenced business operations with Home Funding, a FHLMC and FNMA
mortgage banker in California, and funded 70 loans with said customer totaling
$9,599,530 through March 31, 1996. The average size of such loans was $137,136.
As of September 20, 1996, the Company commenced doing business
with Citizens, a FNMA mortgage banker which does business in Pennsylvania, New
Jersey, Virginia and Delaware. On October 16, 1996, Pacific Crest, a Southern
California FNMA mortgage banker was added to the Company's approved list of
customers, and on December 16, 1996, AIB, a New York based mortgage banking
customer, also was added to the Company's list of approved customers.
During the six months ended September 30, 1996, the Company
funded a total of 331 loans for five customers aggregating $26,796,269. The
average size of such loans was $80,955, and the average duration thereof was 12
days. 210 of such loans aggregating $17,081,344 (average size - $$81.340) were
funded for Windtree, 92 of such loans aggregating $6,435,833 (average size -
$69,955) were funded for 1st Financial, 15 of such loans aggregating $2,154,724
(average size - $143,648) were funded for Home Funding and 14 of such loans
aggregating $1,124,368 (average size - $80,312) were funded for Citizens.
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The Company is currently analyzing applications from four other
potential customers who originate residential family mortgage loans in Arizona,
California, Colorado, Nevada, New Mexico, New Jersey, New York, Oregon, South
Carolina, Utah and Washington.
STANDARDS FOR APPROVAL AS A CUSTOMER
In order to be approved as a customer, a mortgage bank must
satisfy a set of standards that have been established by the Company. To insure
completeness, the process of reviewing and determining whether an applicant has
satisfied all of such standards is fully monitored through the CTS, a
proprietary set of computer-based standards, procedures and controls designed to
manage the risks inherent in the Company's business (see "-- The Collateral
Tracking System"). In accordance with those standards:
the applicant must be in business a minimum of three years and
possess certified financial statements conforming to generally
accepted accounting principles
the applicant must have been approved by at least two Agencies
the applicant must have a minimum net worth of $350,000
an applicant who possesses a net worth of $500,000 or less will
be restricted to a warehouse credit line of not more than
$2,000,000
the applicant must produce corporate and personal income tax
returns covering the three most recent years
the applicant must produce banking statements covering the most
recent six months of its operations for review by the Company
background and reference checks are performed on the customer's
principals and its key underwriting personnel
a credit analysis is performed using independent certified public
accountants
the customer's underwriting and quality control standards and
procedures are reviewed
after thorough screening, the Company determines which of the
secondary mortgage market investors (other than GNMA, FNMA and
FHLMC), as well as the appraisers, title companies and escrow
agents previously used by the customer meet the Company's
standards, and
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only they will be permitted to be used by the customer in
connection with loans funded by the Company
the customer must carry errors and omissions insurance coverage
satisfactory to the Company, and must name the Company as an
additional insured under such coverage
all title companies, escrow agents and appraisers approved by the
Company must carry errors and omissions insurance coverage
satisfactory to the Company. All of such title companies and
escrow agents must issue insured closing protection letters to
the Company with respect to the transactions that the Company
funds through each of them
the customer's principals must personally guaranty payment of all
moneys which the customer will borrow from the Company
After a customer has satisfied the Company's application
standards, a credit facility is entered into by it and the customer which
specifies, among other things, the maximum amount which can be borrowed by the
customer under the facility, the maximum percentage of any single mortgage loan
that will be advanced, the interest rate and terms of repayment. All funds
advanced by the Company under the credit facility are collateralized by a
security interest in, among other things, the note and mortgage or deed of
trust, as well as all instruments and documents comprising the loan
documentation on each loan funded by the Company.
THE COLLATERAL TRACKING SYSTEM
The Company manages the risks inherent in its business, and
prepares, tracks and confirms the on-time delivery of all necessary documents to
the appropriate Agency with its CTS, a proprietary set of computer-based
standards, procedures and controls which was developed principally by the
Company for its business, and not for resale to other mortgage financing
companies. The CTS programs enable the Company to avoid the problems caused by,
and the monetary losses that can result from, the frequent short-term processing
deadlines, the high volume of loan transactions and the complex document
structures of mortgage loan financing transactions which are integral parts of
the mortgage loan warehouse financing business. Substantial penalties for delay
in delivering loan documents to the secondary market, which may range from a
surcharge of 1% - 2% of the principal amount of a loan in the case of a delay
regarding an individual loan commitment, to a complete rejection and refusal to
purchase an entire pool of loans, in the case of a delay in filling a pool
commitment, are an integral part of the mortgage loan warehouse financing
business. An individual loan surcharge will not have any adverse effect upon the
Company, inasmuch as the amount thereof would be
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deducted from the proceeds of the particular loan which the Company would
otherwise be obligated to remit to its mortgage banking customer upon its
acceptance and funding by an Agency. However, a delay which would cause an
Agency to refuse to purchase a pool, could result in a delay of indeterminate
length in replacing the rescinded pool commitment with a new pool commitment
from another Agency, or in selling the components of the pool as individual
loans. Although the Company would ultimately be compensated for the delay via
the generation of higher fees and interest charges payable by its customer on
the pool loans in question, the delay could hinder its ability to timely fund
additional loans submitted by other customers, and thereby adversely affect its
ongoing relations with such other customers as a reliable source of mortgage
warehouse financing. Since the Inception Date, none of the individual or pool
loans funded by the Company on behalf of its customers has been rejected by
reason of a delay in the delivery thereof to an Agency, and the Company has
suffered no loss of principal. See "-- The Mortgage Loan Process From
Application to a Customer Through Funding."
The CTS programs have been modified and altered over time so that
they fit the Company's business without seeking to create a standardized
exportable system, and they include all phases of the Company's mortgage
financing operations in their scope including, but not limited to the following:
Establishing a credit line with a mortgage banking customer
credit worthiness of the proposed customer
background checks of customer's principals
quality of loans financed by customer
loan underwriting procedures and safeguards
use of property appraisers approved by the Company
use of title insurance companies approved by the Company
Processing of loans to be financed by the Company
no funds will be transferred until appropriate verification has
been entered into CTS regarding the receipt, generation, review
and accuracy of each of the following documents
the original mortgage note manually executed by the
borrower and properly endorsed
a copy of the Agency's commitment to purchase the note
a certified copy of the mortgage instrument or deed of
trust
a duly executed assignment of the mortgage or deed of
trust to the Company
copies of any intervening assignments
a copy of the preliminary Title Report
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a copy of the appraisal prepared in full compliance with
the applicable FHA VA loan guidelines
a copy of the borrower's signed loan application - an
executed Regulation Z Statement - a power of attorney,
when needed
a notice of right to cancel, when applicable
the Lender's escrow instructions
a mortgage insurance certificate, when applicable
proof of hazard insurance coverage and payment of the
premium therefor
a flood insurance certificate, when applicable
a copy of Grant/Warrantee Deed, when applicable
CTS automatically tracks the presence or absence of each of the
foregoing documents with respect to each loan being processed,
and provides appropriate on-screen warnings and reports regarding
deficiencies in documentation for any loan
Funding of Loans
CTS keeps track of all amounts funded under its customer's line
of credit, automatically determines whether a sufficient balance
remains thereunder to fund a particular loan; and updates the
available balance information upon transfer of funds
CTS generates all documentation pertaining to the transfer of
funds to the title company closing a loan, the transmittal and
release of loan documents to an Agency, the receipt of funds in
payment of loans purchased by an Agency and the distribution of
funds to the mortgage bank in repayment of the 2% portion of each
loan funded by it
THE MORTGAGE LOAN PROCESS FROM APPLICATION
BY A CUSTOMER THROUGH FUNDING
The Company's customers are Agency-approved mortgage banks that
generally originate two categories of mortgage loans which are purchased by such
Agencies, i.e., (i) residential mortgage loans which either have been insured by
the Federal Housing Administration, insured by the Farmer's Home Administration
or guaranteed by the Veteran's Administration (collectively, "FHA/VA Loans");
and (ii) conventional residential mortgage loans, i.e., non-FHA/VA Loans which
comply with the requirements for sale to, or conversion into, mortgage-backed
securities issued by FNMA or FHLMC ("conforming loans").
The Company is first contacted about a loan to be funded for one
of its mortgage bank customers after the mortgage bank has (i) already completed
the application review and underwriting process for the loan; (ii) satisfied
itself that the
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loan complies with applicable FHA/VA Loan guidelines, as well as the applicable
Agency's loan requirements; and (iii) received a commitment from the Agency to
purchase the loan or a pool of loans which will encompass the loan in question.
In order to be able to gain access to its mortgage warehouse loan credit
facility, the CTS must confirm receipt from the mortgage bank of all of the loan
documentation hereinabove discussed.
In general, within one day of the CTS's confirmation that all of
such documentation has been received, reviewed by the Company's staff and
confirmed as to accuracy and completeness, it will wire transfer 98% of the
proceeds of the loan to the appropriate escrow agent or title company with
instructions to disburse same only upon consummation of the closing, or
otherwise return the funds to the Company. At the time of closing, the mortgage
banker funds the 2% balance of the loan proceeds.
On or shortly before expiration of the Agency Commitment Date,
the Company delivers all notes and mortgage instruments comprising the loans to
be purchased pursuant to the Agency's commitment to the Agency's payment agent
under cover of a "Bailee Flow Letter" which conditions the transfer of title of
such documents from the Company to the Agency upon payment to the Company of the
aggregate principal amount of the loans being delivered. Upon receipt of such
funds from the paying agent, the Company remits a part thereof to its mortgage
banking customer equal to the 2% portion of the loan proceeds funded directly by
the mortgage bank, less the Company's fees and the interest payable with respect
to the funds borrowed from the date of closing of the loan through the date of
the Company's receipt of the funds from the Agency's paying agent.
By limiting the mortgage loans to those that conform to Agency
criteria, which criteria define the prevalent standards for the entire secondary
mortgage market, the Company reduces its overall financing risks to those
mortgages which are the most liquid and readily acceptable by secondary mortgage
market lenders. Furthermore, by insisting on receipt of full documentation with
respect to a loan, the Company is assured that if, for any reason, an Agency
refuses to accept and pay for a loan subsequent to the closing thereof, the
Company will have all of the data and documentation necessary to sell the loan
to another Agency, or to a mortgage loan originator or warehouse lender which
will seek to pool the loan with other loans and market it in the secondary
mortgage market. In the event that an Agency, for any reason, were to fail to
accept a loan for purchase under a previously issued commitment, the Company
would be able to avail itself of one of the following three options: (i) the
Company could require its mortgage banking customer to resubmit the loan to the
same Agency after curing the error or other reason for its rejection which, in
most cases according to Pioneer's experience, is incomplete or illegible
documentation; (ii) the Company could require its customer to sell the loan to
another Agency or secondary market institutional investor that will accept
mortgage loans on an "as is" basis, in which case, the customer, not the
Company, would be required to absorb any loss accruing to such transaction; or
(iii)
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the Company could exercise the right it possesses under the loan and security
agreement that it enters into with each of its mortgage banking customers to
demand that such customer refund all warehouse financing funds advanced by the
Company with respect to the rejected loan upon 24 hours' notice. Between the
Inception Date and September 30, 1996, no loan which was approved for funding by
the Company failed to close, and every loan which was closed with the Company's
funds during said period was sold to one of the Agencies in accordance with the
commitments given by them in advance of such closings. During the 18 month
period which preceded the November 1989 commencement of Pioneer's Chapter 11
bankruptcy proceedings, less than 100 of the approximately 12,000 loans
aggregating approximately $1.3 billion that Pioneer funded were rejected by the
Agencies which had originally committed to purchase them. Every one of those
rejected loans was sold by Pioneer to another purchaser in the secondary
mortgage market.
EMPLOYEES
As of the date of this Prospectus, the Company has three
executives, and three part time loan processors. Although the Company has been
accruing a compensation obligation to its Chief Executive Officer and its
President at the rate of $55,000 per annum for each executive, it has not paid
any portion thereof to either officer, although it is anticipated that such
payments will be made prior to the end of the current fiscal year. It is also
anticipated that, prior to the end of the current fiscal year, the Company's
part time employees will become full time employees and that it will hire up to
four additional employees to process the expanded volume of mortgage loan
transactions that the Company expects to fund with its use of the net proceeds
of the Offering. See "Use of Proceeds". The Company's Chief Executive Officer
and Chief Operating Officer have agreed to enter into employment agreements, and
its Chief Financial Officer has entered into an employment agreement. See
"Management -- Employment Agreements." None of the employees of the Company is
represented by a labor union or is subject to a collective bargaining agreement.
The Company believes that its relations with its employees are good.
FACILITIES
The Company maintains its office at 6660 Reseda Boulevard,
Reseda, California which is occupied pursuant to a five year lease which
commenced on November 1, 1996, and which provides for the payment of rent in the
amount of $2,178 per month. Following completion of the Offering, the Company
intends to lease executive office facilities in New York, New York.
COMPETITION - MORTGAGE WAREHOUSE LENDING
The business of originating and financing the origination of
residential mortgage loans in highly competitive. In order to obtain qualified
residential mortgage loans from small to medium sized originating mortgage
bankers, the
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Company must compete with national, regional and local commercial banks and
mortgage banking companies who engage in mortgage loan warehouse lending. Many
of those institutions and companies, which have longer operating histories and
significantly greater resources than those of the Company, are engaged in
providing on much greater scales than the Company's resources will permit for
the foreseeable future, the same or similar kinds of computer-based bridge
financing of residential mortgage loans that Pioneer has heretofore offered to
its customers, and which the Company is presently offering. Larger established
mortgage warehouse lenders are making substantial investments in their computer
operations to achieve significant economies of scale and greater flexibility in
rendering services. Also, major bank-related organizations like the Mortgage
Warehouse Division of Bank of New York, Bank of America, PNC Bank, and other
businesses engaged in lending activities, such as CWM Mortgage Holding, Inc.'s
Warehouse Lending Corporation of America, The Associates First Collateral
Services and General Electric Capital Corp.'s Residential Funding Corporation
are entering or reentering the mortgage warehouse financing business. Similarly,
although the Company is not aware of any plans for any of the Agencies to enter
the mortgage warehouse lending business, any of these Agencies has the capital,
the expertise, and the industry know-how to enter this business in a significant
manner. Furthermore, if any of the Agencies did enter this business, it would
constitute very strong competition to the Company in its efforts to secure well
qualified customers on terms favorable to the Company. Such an increase in
competition in the mortgage warehouse business could have a material adverse
effect on the Company's business operations and prospects. There can be no
assurance that the Company will be able to compete effectively with such
competitors, that additional competitors will not enter the market, or that such
competition will not make it more difficult for the Company to secure a
sufficient number of high quality mortgage banking customers to realize its
anticipated business growth.
REGULATION - MORTGAGE WAREHOUSE LENDING
Although mortgage loan warehousing is not presently subject to
federal regulation, the California Finance Lenders Law went into effect July 1,
1995. That law imposes licensing obligations on the Company, requires the filing
of annual and periodic reports, establishes maximum interest rates and repayment
terms in certain cases, and provides for fines and imprisonment for violation of
the law. Other participants in the mortgage warehouse financing process, such as
title companies and appraisers, also may be regulated by the states in which
they reside and such regulations often determine the scope and approach of the
Company's collateral control monitoring program. Furthermore, mortgage banking
is a highly regulated industry. The Company's mortgage banking customers are
subject to the rules and regulations of, and examinations by, the FHA, VA, GNMA,
FNMA, FHLMC and state regulatory authorities with respect to originating,
processing, underwriting, selling, securitizing and servicing residential
mortgage loans. In addition, there are other federal and state statutes and
regulations affecting such activities. Potential future changes in these rules
and regulations could, among
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other things, adversely impact its customers' business activities by, among
other things, establishing eligibility criteria for mortgage loan warehousing,
prohibiting discrimination, providing for inspections and appraisals of
properties, requiring credit reports on prospective borrowers, regulating
payment features, requiring disclosures to customers, governing secured
transactions, establishing collection, repossession and claims handling
procedures and other trade practices and, in some cases, fixing maximum interest
rates, insurance coverages, fees and loan amounts. Failure to comply with these
requirements could lead to loss of approved status, class action lawsuits and
administrative enforcement actions.
Although the Company is not presently aware of any pending or
proposed laws, rules or regulations which, if adopted, would make compliance
more difficult or expensive, restrict the Company's ability to fund the
warehousing of mortgage loans, restrict the Company's customers' ability to
originate or sell mortgage loans, further limit or restrict the amount of
interest and other charges earned from loans warehoused by the Company or
otherwise adversely affect the business or prospects of the Company, no
assurance can be given that limitations and/or restrictions of that nature will
not be adopted in the future.
PIONEER'S CHAPTER 11 BANKRUPTCY PROCEEDINGS
Pioneer was founded in 1980 as a financial services, merchant
banking, and mortgage warehouse lending company. Its principal business was the
financing of companies within the airline, mortgage, and heavy equipment
industries on both a secured and unsecured basis. Pioneer provided working
capital loans monthly to regional and commuter airlines, which loans were
generally secured by accounts receivable owed by the Airline Clearing House, an
agent for participating airlines in the settlement and reconciliation of certain
obligations that arise between the participating airlines in the ordinary course
of business. In 1988 and 1989, Pioneer processed over $1.3 billion in mortgage
warehouse loans which it made to approximately thirty mortgage companies
nationwide.
In 1989, Presidential Airways ("Presidential"), a United Airlines
("United") "feeder" carrier which was not affiliated with United's corporate
structure, and which did business under the name "United Express," owed Pioneer
approximately $19 million which was fully collateralized by a perfected security
interest in Presidential's accounts receivable, and it owed Pioneer $2 million
which was unsecured. At the same time, Presidential also owed United
approximately $7.5 million on an unsecured basis. In September, 1989,
Presidential informed Pioneer that, pursuant to a demand made by United,
Presidential had used $7.5 million of the collateral underlying its $19 million
secured indebtedness to Pioneer in order to pay an unsecured debt owed to
United. Shortly thereafter, Presidential filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Act.
The conversion of Pioneer's collateral essentially eliminated 80%
of Pioneer's net worth resulting in the violation of loan covenants that were
the
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financial underpinnings of lines of credit aggregating approximately $130
million which Pioneer maintained with various domestic and international banking
institutions. Pioneer's management believes that the cancellation of such credit
lines which occurred by reason of such covenant violations resulted in Pioneer's
loss of revenues approximating $300,000 per month which otherwise would have
been available in the ordinary course of its financing business.
In October 1989, Pioneer commenced an action against United in
the United States District Court for the Southern District of New York (the
"United Litigation") seeking compensatory and punitive damages for United's
wrongful conversion of Pioneer's collateral and for tortious interference with
the financing agreement between Pioneer and Presidential.
After unsuccessfully attempting to formulate an out-of-court
settlement of its debts, Pioneer's creditors, over Pioneer's strenuous
objections, filed an involuntary petition in bankruptcy in January 1990 seeking
liquidation of Pioneer under Chapter 7 of the Bankruptcy Code. After weighing
all of its options, Pioneer determined that Chapter 11 would provide Pioneer a
means by which it could focus its financial resources on the prosecution of the
United Litigation, and thereby provide meaningful recoveries to creditors. At
the same time, Pioneer determined that the protection afforded under Chapter 11
would enable Pioneer to reestablish large scale financing operations, either
during, or upon the emergence from, Chapter 11. Accordingly, in April 1990,
Pioneer voluntarily converted its involuntary Chapter 7 case to a case under
Chapter 11 of the Bankruptcy Code.
In November 1992, United settled the United Litigation with
Pioneer and the lead banks who were Pioneer's principal secured creditors. Such
settlement entailed the payment by United of $5.5 million to Pioneer and its
creditors, plus Pioneer's receipt of another $500,000 from the liquidation of
receivables in which Pioneer held a security interest.
In April 1993, Pioneer emerged from bankruptcy in accordance with
the terms of the Plan. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources -
Pioneer's Chapter 11 Bankruptcy Proceedings."
THE COMPANY'S ACQUISITION OF TRANS LENDING
Pursuant to a stock purchase agreement dated as of December 23,
1996 (the "Stock Purchase Agreement"), the Company has acquired a 50% ownership
interest in Trans Lending. In accordance with the Stock Purchase Agreement, the
Company is entitled to designate two of the three members of Trans Lending's
Board of Directors (Messrs. Goldberg and Housman have been designated by the
Company to serve in such capacities), and the Company is entitled to designate
the
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person who will serve as Trans Lending's Chief Executive Officer (the Company
has named Mr. Goldberg to serve in that capacity).
The Stock Purchase Agreement further provides for Trans Lending's
employment of Kenneth Germain, pursuant to a separate employment agreement, as
its President and Chief Operating Officer. That employment agreement provides
for Mr. Germain's employment for a period of three years commencing on December
23, 1996 at an initial base salary of $96,000 per annum. Also, in accordance
with the Stock Purchase Agreement, the Company has entered into a non-compete
agreement with Mr. Germain which precludes his engagement in any business
activities which would be competitive with Trans Lending's business activities
during the term of his employment and for various periods following the
termination of his employment, provided that Trans Lending continues to pay the
base salary which Mr. Germain shall be entitled to receive as of the date of his
termination during such period of non-competition. However, if Trans Lending
terminates Mr. Germain's employment without cause, the provisions of the
non-compete agreement will preclude him from soliciting the employment of any of
Trans Lending's employees, but will not prohibit him from otherwise engaging in
competitive activities with Trans Lending. Mr. Germain is the owner of 25% of
Trans Lending's outstanding common stock. Alan Mann, who is Mr. Goldberg's son
in law, also owns 25% of Trans Lending's outstanding common stock. Mr. Mann has
granted an irrevocable proxy to Mr. Germain to vote such shares on all matters
coming before a vote of the shareholders of Trans Lending during the three year
term of Mr. Germain's employment agreement with Trans Lending. See "Certain
Transactions."
From May 1989 to January 1992, Mr. Germain was Chairman and Chief
Executive Officer of American Lending Corporation, a finance company which
originated approximately $30,000,000 of non-prime loans acquired from dealers
located in ten states, and sold to MidLantic National Bank. From February 1992
to April 1995, Mr. Germain was Chairman and President of U.S. Lending
Corporation, a non-prime automobile lender which acquired Contracts aggregating
approximately $45,000,000 during that time period. Between September 1995 and
September 1996, Mr. Germain was President of Respect Capital Group, Inc., a
Florida based originator of non-prime loans which it acquired for its own
account and for the account of other lenders that it represented.
THE NON-PRIME AUTO FINANCE INDUSTRY
Historically, traditional automobile financing sources have not
serviced the non-prime market or have done so only through programs that were
not consistently available. An industry group of independent finance companies
specializing in non-prime automobile financing is now emerging, but it remains
highly fragmented, with no company having a significant share of the non-prime
market.
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The National Automobile Dealers Association ("NADA") estimates
that the retail sales market for used vehicles exceeds $100 billion annually in
the United States and that new car dealers alone sold over 15 million used
vehicles in 1996. Based on NADA statistics, retail sales of used vehicles have
steadily increased over the past decade.
Sales prices of used vehicles range from high end sales, which
generally include vehicles having retail prices above $10,000, to low end sales,
which generally include vehicles having retail prices below $5,000. Purchasers
of vehicles in the high end category generally have access to traditional
sources of credit, such as banks and finance companies. Non-prime borrowers of
the low end vehicles generally cannot obtain financing from traditional credit
sources and must obtain financing from the small independent car dealers that
sell such vehicles, commonly known as "buy here, pay here" dealers.
TRANS LENDING'S AUTOMOBILE FINANCING OPERATIONS - OVERVIEW
Trans Lending commenced business operations in December of 1996.
It operates as a finance company licensed under the laws of the State of
Florida, and originates consumer automobile financing transactions for non-prime
borrowers (consumers who are typically unable to obtain financing from
traditional sources because they have past credit problems (including
bankruptcy), have limited or no credit histories and/or have low incomes) by
acquiring Contracts from franchised and independent used car dealers. Trans
Lending presently represents AVCO, ACC and Norwest who have agreed to purchase
Contracts acquired by Trans Lending from approximately 60 dealers located in
Florida.
THE LENDERS REPRESENTED BY TRANS LENDING
Trans Lending presently represents three lenders who have agreed
to purchase Contracts acquired by Trans Lending from its dealers.
AVCO, a wholly owned subsidiary of Textron Corp., generally will
advance 100% of the amount financed (the full lease or contract price less the
down payment) on Contracts of up to $25,000 having terms ranging between one and
ten years. Trans Lending will receive approximately $700 - $1,000 in combined
administrative fees and rate discounts on the amount financed on each Contract
which AVCO funds for one of Trans Lending's dealers. Although Trans Lending
expects to enter into a written representation agreement with AVCO, no assurance
in that regard can be given.
OFL-A Receivables Corp. ("O-FLA"), a subsidiary of ACC, has entered into
an agreement with Credit Central, Inc, a wholly owned subsidiary of Trans
Lending, which provides for the purchase by O-FLA and ACC of Contracts
originated by Trans Lending. As in the case of AVCO, O-FLA and ACC generally
will advance up to 100% of the amount financed on Contracts of up to $10,000
having terms ranging
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between one and five years. Trans Lending will receive approximately $700 -
$1,000 in combined administrative fees and rate discounts on the amount financed
on each Contract which O-FLA and ACC fund for one of Trans Lending's dealers.
Trans Lending has contracted with Norwest to service the
Contracts originated by Trans Lending, whether owned by Trans Lending or sold as
whole loan sales after the acquisition date. See "-- Servicing of Contracts." In
addition, Trans Lending's agreement with Norwest provides that Trans Lending
will actually purchase and pay for all Contracts to be acquired by Norwest, and
hold same for a period of 90 days prior to their transfer to Norwest. In all
such instances the Contracts will have been pre-approved by Norwest for its
ultimate purchase from Trans Lending. The Contracts which are subject to Trans
Lending's agreement with Norwest must be for terms of not more than 24 months
and must not exceed $5,000. In addition to the $700 - $1,000 in combined fees
and discounts which Trans Lending will earn on each Contract, it will also earn
the first two monthly payments which become due and payable during said 90 day
holding period. Trans Lending expects to initially utilize approximately
$200,000 of its capital in connection with the purchase of Contracts which it
will be reselling to Norwest.
TRANS LENDING'S BUSINESS STRATEGY
Trans Lending's primary business objective is to acquire
Contracts originated by franchised car dealers and independent used car dealers
initially within the state of Florida, and thereafter throughout the United
States. Except in the case of Norwest, upon the acquisition of the Contracts,
the originating dealers will assign the installment loans (and the security
interests arising from the acquisition thereof) and the leases to Trans
Lending's lender. In the case of Contracts originated by Trans Lending for
Norwest, the dealers will assign the Contracts and related security interests to
Trans Lending, who will warehouse the Contracts, and collect all payments due
thereunder for the first 90 days of the terms thereof. At the end of such 90 day
period, Trans Lending will assign such Contracts and the related security
interests to Norwest. The originating dealers will also provide evidence that
proper applications for certificates of title have been made to ensure that the
purchaser of the Contract will be named as the lienholder on the certificates of
title relating to the financed vehicles.
Trans Lending will seek to purchase the Contracts at prices
approximating the average wholesale values of the vehicles being financed. In
addition, Trans Lending will seek to obtain Contracts with maturities that are
less than the remaining useful lives of the vehicles being financed, and which
require substantial minimum down payments of 10% (in cash or trade-in vehicle)
by the borrowers. The Company may lend up to $2,000,000 of the net proceeds of
the Offering to Trans Lending for use in connection with Trans Lending's direct
financing of Contracts. See "Use of Proceeds."
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To achieve the foregoing objectives, Trans Lending has designed
criteria as to the price, purchase discount, term, down payment, installments
and interest rate for the Contracts and the price, cost to the dealers and
average wholesale value of the vehicles to qualify for purchase by Trans
Lending's lenders.
SALES AND MARKETING
Trans Lending will market its financing program primarily to
franchised automobile dealers and to a limited number of independent used
automobile dealers. Before acquiring Contracts from a dealer for one of Trans
Lending's lenders, Trans Lending and the dealer will enter in to an agreement
that will provide Trans Lending and/or its lender with recourse to the dealer in
cases of dealer fraud or a breach of the dealer's representations and
warranties. Trans Lending presently has established Contract acquisition
relationships with approximately 60 dealers located in the State of Florida.
Over the next 12 months, Trans Lending's management intends to seek authority to
conduct business in several competing markets, including Georgia, Texas, North
Carolina, Virginia, Pennsylvania, Tennessee and Ohio. Trans Lending will seek to
increase its representation of additional dealers in Florida, and to establish
such relationships with other dealers located elsewhere in the United States. No
assurance can be given that Trans Lending will be successful in that regard, or
if it successfully establishes such relationships, that it will be able to
maintain them. In the absence of establishing and maintaining a greater number
of Contract acquisition relationships with a greater number of dealers located
within Florida and elsewhere, Trans Lending's business would be materially
adversely affected. See "-- Regulation -- Non-Prime Automobile Financing;" and
"-- Competition -- Non-Prime Automobile Financing."
As of the date of this Prospectus, Trans Lending has three sales
representatives on salary covering the State of Florida. The
salesrepresentatives regularly meet with dealers, provide information about
Trans Lending's program, train dealer personnel as to Trans Lending's program
requirements and assist dealers in identifying consumers who qualify for Trans
Lending's program.
APPLICATION PROCESSING AND PURCHASE CRITERIA
Dealers will submit credit applications to Trans Lending's credit
center, typically by facsimile. Upon Trans Lending's receipt of a credit
application, a credit processor employed by Trans Lending will use an automated,
computer-based system to obtain credit histories, determine the wholesale value
of the vehicle and calculate the credit score of the application. Trans
Lending's credit officers will use the credit score as a guide to evaluate
applications, but the approval/declination decision will not be based solely on
the credit score. Trans Lending then will notify the dealers by facsimile of a
credit decision, usually within three hours of receipt of the application. Trans
Lending then will submit the completed package to its lender for funding.
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SERVICING OF CONTRACTS
Trans Lending has contracted with NorWest to service the
Contracts it will originate, whether owned by Trans Lending or sold as whole
loan sales after the acquisition date. Norwest's servicing will include payment
and payoff processing, collecting, insurance tracking, title tracking,
responding to borrower inquiries, investigating delinquencies, repossessing and
reselling collateral, collection reporting and credit performance monitoring.
EMPLOYEES
As of the date of this Prospectus, Trans Lending has six full
time employees, including its three Florida sales representatives. Trans Lending
is not a party to any collective bargaining agreement.
COMPETITION - NON-PRIME AUTOMOBILE FINANCING
The non-prime consumer automobile finance market is highly
competitive. The level of competition has increased significantly in recent
years and this trend is expected to continue. Historically, commercial banks,
savings and loan associations, credit unions, captive finance subsidiaries of
automobile manufacturers and other consumer lenders, many of which have
significantly greater resources than Trans Lending, have not competed for
non-prime consumer business. To the extent that such lenders expand their
activities in the non-prime consumer market,Trans Lending's financial condition
and results of operations could be materially adversely affected. During the
past two years, several companies have devoted considerable resources to the
non-prime consumer market, including well-capitalized public companies.
Specifically, Ford Motor Credit Company has begun to finance non-prime
consumers, General Electric Capital Corporation established strategic alliances
with several regional non-prime consumer automobile finance companies and
KeyCorp. acquired AutoFinance Group, Inc., one of Trans Lending's competitors.
Other companies, including Mellon Bank Corporation and Southern National
Corporation, have also entered the market.
Trans Lending's business is also affected by certain demographic,
economic and industry trends. These trends include increased sales of used cars,
rising new car prices relative to used car prices, stability in non-prime
consumers' demand for used cars, the inability of non-prime consumers to find
lower cost financing from other sources and the overall level of interest rates
in general. A reversal of any of these trends or a change in any of these
conditions could have a material adverse effect on Trans Lending's financial
condition and results of operations.
REGULATION - NON-PRIME AUTOMOBILE FINANCING
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Trans Lending is registered as a finance company in the State of
Florida, and will be required to comply with similar registration regulations in
many of the other states where it will be conducting business. Each of such
states will subject Trans Lending to varying degrees of regulation and periodic
examination. In addition, numerous federal and state consumer protection laws
impose requirements upon the origination and collection of consumer receivables.
The laws of some states impose finance charge ceilings and other restrictions on
consumer transactions and may require certain contract disclosures in addition
to those required under federal law. These requirements impose specific
statutory liabilities upon creditors who fail to comply with their provisions.
In addition, certain of these laws make an assignee of such loan liable to the
obligor thereon for any violations by the assignor. Trans Lending must verify
the accuracy of disclosure for each Contract that it will be purchasing;
however, if it becomes an assignee of the accounts receivable due under any
Contracts, it may be unable to enforce some of its receivables or may be subject
to liability to the obligors under some of its receivables if such receivables
do not comply with such laws.
In the event of default by an obligor on a Contract purchased by
Trans Lending, it will be entitled to exercise the remedies of a secured party
under the Uniform Commercial Code ("UCC") in effect in the state of residence of
the obligor. The UCC remedies of a secured party include the right to
repossession by self-help means, unless such means would constitute a breach of
the peace. Unless the obligor voluntarily surrenders a vehicle, self-help
repossession by an independent repossession specialist engaged by Trans Lending
generally will be employed by Trans Lending when an obligor defaults. Self-help
repossession is accomplished by retaking possession of the vehicle. If a breach
of the peace is likely to occur, or if applicable state law so requires, Trans
Lending will be obligated to obtain a court order from the appropriate state
court and repossess the vehicle in accordance with that order.
In most jurisdictions, the UCC and other state laws require the
secured party to provide the obligor with reasonable notice of the date, time
and place of any public sale or the date after which any private sale of the
collateral may be held. Unless the obligor waives his rights after default, the
obligor in most circumstances would have the right to redeem the collateral
prior to actual sale by paying the secured party all unpaid installments of the
receivable plus reasonable expenses for repossessing, holding, and preparing the
collateral for disposition and arranging for its sale, plus in some
jurisdictions, reasonable attorneys' fees, or, in some states, by payment of
past-due installments. It is anticipated that repossessed vehicles generally
will be resold by Trans Lending through wholesale auctions which are attended
principally by automobile dealers.
LITIGATION PROCEEDINGS
The Company is not a party to any litigation proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Arthur H. Goldberg 54 Chairman of the Board, Chief Executive
Officer, Director
Elie Housman 59 President, Director
Glenda Klein 53 Director, Senior Vice President, Secretary,
Treasurer and Chief Financial Officer
Richard Fried 50 Director
Boaz Harel 40 Director
Tamar Lieber 54 Director
Mark Roth 35 Director
</TABLE>
Mr. Goldberg is one of the original shareholders of, and was the
pre-Merger Chairman of the Board and President of PCF. He was appointed to
Pioneer's Board in February 1994. Upon consummation of the Merger, he
relinquished his positions as Chairman and President of the Company to Mr.
Lieber, but continued to serve as a director of the Company. Following Uri
Lieber's death in March 1995, Mr. Goldberg assumed the positions of Chairman of
the Board and Chief Executive Officer. Since December 1993, Mr. Goldberg has
served as President of Manhattan Associates, LLC, a merchant banking and
investment banking firm. Between April 1990 and December 1993, he served as
Chairman of Reich & Co., a securities brokerage and investment banking firm
which is a member of the New York Stock Exchange. Prior thereto, he served as
President and Chief Operating Officer of Integrated Resources, Inc.
("Integrated"), a diversified financial services company which commenced
proceedings under Chapter 11 of the Bankruptcy Code. In November 1994,
Integrated's sixth amended reorganization plan was consummated. In accordance
therewith, senior creditors of the reorganized company (now known as Presidio
Capital Corp. ("Presidio")) may receive as much as 70% of their original claims
totalling approximately $1.1 billion, and junior creditors will receive between
3.1% and 4.5% of their claims of approximately $672 million. As of December 31,
1995, holders of allowed and disputed Integrated
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senior general unsecured and subordinated claims (aggregating approximately $1.9
billion) received Presidio's 8.8 million Class A common shares ("Class A
Shares"), and 8.8 million shares of the common stock of XRC Corp., a Delaware
corporation which succeeded to assets of Integrated with a net value of less
than $5 million pursuant to Integrated's plan of reorganization. A reserve for
disputed claims in Integrated's bankruptcy case was established and funded by
Presidio with $46 million in cash and 162,932 Class A Shares. At December 31,
1995 approximately $7 million in cash and 47,081 shares remained in reserve. Mr.
Goldberg is a trustee of Ramco Gershenson Property Trust, a New York Stock
Exchange listed real estate investment trust.
Mr. Housman is one of the original shareholders of, and was a
director, Vice President and Secretary of, PCF. He was appointed to Pioneer's
Board in February 1994, and his position as a director of the Company continued
upon consummation of the Merger. Following Mr. Lieber's death in March 1995, Mr.
Housman assumed the position of President of the Company. Since 1989, Mr.
Housman has been Managing Director and Principal of Charterhouse Group
International, a privately held merchant bank. Prior thereto, Mr. Housman
engaged in financial and business consulting through E. Housman, Inc., a
corporation wholly owned by him. Mr. Housman is also President, Chief Operating
Officer and a director of Satellite Tracking Technologies, Inc., a privately
held company.
Ms. Klein joined Pioneer in 1986 as a Vice President, and served
as its Senior Vice President and Secretary since 1988. She has served as a
director of Pioneer since 1993, and was appointed to serve as Pioneer's
Treasurer and Chief Financial Officer in 1994. She assumed the same directorial
and official positions with the Company upon consummation of the Merger. In 1993
Mrs. Klein and her husband filed a petition pursuant Chapter 7 of the Bankruptcy
Code. After receiving a discharge in bankruptcy, Mr. and Mrs. Klein reopened the
bankruptcy proceedings and converted same to a case under Chapter 11 of the
Bankruptcy Code. In April 1995, Mr. and Mrs. Klein deposited $100,000 into the
Bankruptcy Court for the purpose of paying in full, with interest, any of the
creditors of their bankrupt estate who had filed claims against in said
proceedings. In October 1995, such proceedings were closed.
Mr. Fried was appointed to Pioneer's Board in February 1994. Upon
consummation of the Merger, he became a Vice President and director of the
Company. He relinquished his position as an officer in November 1996. From
December 1986 through February 1991, Mr. Fried was a shareholder, President and
Chairman of Kanon Bloch Carre & Co., Inc., an SEC registered investment advisor
and stock brokerage firm which was an NASD member firm. Between February 1991,
when said firm was sold to an unrelated party, and June 1991, he was engaged as
a business consultant. In addition thereto, (i) since June 1991, Mr. Fried has
served as President of Medical Systems, Inc., an application software developer,
and he has been a principal shareholder thereof since June 1993; (ii) since
February 1993, he has also served as President of Montgomery Associates, Inc., a
corporation wholly
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owned by him which is engaged in business as an importer-exporter; (iii) since
April 1993, Mr. Fried has been a principal shareholder, and has served as
President of Sea Change Systems, Inc., a software tools developer; (iv) from
April 1993 to May 1994, he was a Branch Manager of LPL Financial Services, a
stock brokerage firm which is an NASD member firm; (v) since November 1994, Mr.
Fried has been a controlling shareholder and has served as President of
Smartpay, Inc., a collection service; and (vi) since October 1996, Mr. Fried has
been a controlling shareholder, and has served as President of Leeward Software,
Inc. d/b/a Advanced Medical Systems, an application software developer.
Mr. Harel was appointed to the Board, effective November 11,
1996. Mr. Harel has been the Managing Director of Leedan Business Enterprise
Ltd., ("Leedan") a publicly held Israeli holding company which has a class of
securities listed on the Israeli Stock Exchange. Leedan's holdings include ICTS
Holland Production, B.V. ("ICTS Holland"), a publicly held provider of enhanced
aviation security services which has a class of securities listed on the Nasdaq
Stock Market. From 1991 to 1993, Mr. Harel was the founder and managing director
of Mashik Business and Development Ltd., an engineering consulting company.
Since September 1996, and in addition to his capacity as the Managing Director
of Leedan, Mr. Harel relocated to New York and has served as the Chairman of
ICTS USA (1194), Inc., a wholly owned subsidiary of ICTS Holland, and in this
capacity, he has been responsible for the business development of ICTS Holland
in the United States. Leedan Systems & Properties Promotion 1993 Ltd. ("Leedan
Systems"), one of the Company's principal shareholders, is an affiliate of
Leedan. See "Principal Security Holders."
Mrs. Lieber was appointed to the Board on June 5, 1995 to fill
the vacancy created by reason of the death of her husband, Uri Lieber, the
former Chairman and Chief Executive Officer of the Company. Mrs. Lieber has been
engaged in private practice as a psychotherapist for more than the past five
years.
Mr. Roth was appointed to the Board, effective November 11, 1996.
Mr. Roth is an attorney who engaged in the private practice of law between 1989
and September 1995. In 1992, Mr. Roth began representing National Securities
Corporation ("National"), the underwriter of the Company's IPO, in transactional
and litigation matters. He became a full time employee of, and was appointed
General Counsel of, National in October 1995, and continues to serve in that
capacity. In accordance with the underwriting agreement executed by the Company
with National in connection with the IPO, National is entitled to designate one
member of the Company's Board during the three year period which commenced on
August 16, 1996. Mr. Roth was appointed to the Board as National's designee. See
"Certain Transactions."
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EXECUTIVE COMPENSATION
Prior to the Merger, the Company did not pay any form of
compensation to any of its executives. The following table sets forth
compensation awarded to, earned by or paid to Uri Lieber and Arthur Goldberg in
their capacities as Chief Executive Officer of the Company. No executive officer
of the Company earned a salary and bonus of more than $100,000 during any of the
three fiscal years ended March 31, 1996. The Company has agreed to enter into
employment agreements with Arthur H. Goldberg and Elie Housman, and has entered
into an employment agreement with Glenda Klein. See "Management Employment
Agreements."
The Company did not, prior to commencement of its fiscal year
ending March 31, 1996 (a) grant any restricted stock awards or stock
appreciation rights to any of its executives; (b) pay compensation to any of its
executives that would qualify as "All Other Compensation;" or (c) make payments
to any of its executives which may be categorized as "Other Annual Compensation"
or "LTIP Payouts."
<TABLE>
<CAPTION>
Other Securities
Annual Restricted Underly-
Name and Fiscal Compen- Stock ing
Principal Year Salary($) Bonus($) sation($) Awards($) Options/
Position ----- --------- -------- --------- ---------- SARs (#)
- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Uri Lieber
Former CEO 1995 $55,747(1) --- $6,924(2) --- ---
1994 41,392 --- 1,079(2) --- ---
Arthur Gold-
berg, CEO 1996 --- --- --- --- 75,758/0
</TABLE>
- ------------------------
(1) Represents compensation paid to Mr. Lieber through the date of his death.
The Company also has accrued approximately $36,000 representing amounts due to
Mr. Lieber under his employment agreement with the Company.
(2) Represents the premiums paid by the Company with respect to term life
insurance owned by Mr. Lieber and payable to his designated beneficiary.
EMPLOYMENT AGREEMENTS
Prior to his death in March 1995, the Company was party to an
employment agreement with Uri Lieber, the former Chairman and President of
Pioneer, which: (a) provided for Mr. Lieber's employment as Chairman and Chief
Executive through June 30, 1996; (b) provided for base compensation to Mr.
Lieber at
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the rate of $110,000 per annum, subject to such discretionary increases and
bonuses as the Compensation Committee of the Board of Directors may deed
appropriate; (c) obligated the Company to pay the premiums with respect to two
term life insurance policies owned by Mr. Lieber and payable to his designated
beneficiary in the aggregate amount of $1,200,000, or to provide similar
insurance benefits with other policies to be purchased by the Company; (d)
obligated the Company to provide to Mr. Lieber all categories of benefits
offered to other executives and employees; (e) terminated upon Mr. Lieber's
death, and was terminable by the Company upon his disability or in the event of
his gross malfeasance, gross misconduct, conviction of a felony, or other
similar good cause materially detrimental to the Company; and (f) also provided
for Mr. Lieber's indemnification, subject to any limits imposed thereof by law,
and/or the Company's Certificate of Incorporation and By-Laws, with respect to
certain claims which may be brought against him, and to pay his legal defense
costs in connection therewith.
Messrs. Goldberg and Housman have agreed to enter into employment
agreements with the Company, pursuant to which Mr. Goldberg will devote
substantial portions of his time to the affairs of the Company as Chairman and
Chief Executive Officer, and Mr. Housman will devote substantial portions of his
time to the affairs of the Company as President and Chief Operating Officer.
Although the terms of such agreements have not been fully negotiated as of the
date of this Prospectus, the Company believes that each agreement will have a
term of three years, will provide for payment of base compensation at the rate
of $75,000 per annum and also provide for the receipt by Messrs. Goldberg and
Housman of all other perquisites and benefits conferred by the Company to any
other officer. The agreements will further provide for the indemnification of
Messrs. Goldberg and Housman to the fullest extent permitted by applicable law
with respect to all claims for compensatory damages (but not punitive damages or
the expenses incurred by her in defending against such claims) alleged against
them in any action, suit or proceeding commenced against them by reason of their
status as present or former officers, directors or employee of the Company, or
any subsidiary or affiliate of the Company, including actions brought by or in
the right of the Company to procure a judgment in its favor. As an inducement to
Messrs. Goldberg and Housman to enter into such employment agreements with the
Company, the Board has authorized the Company to grant to each of them a five
year option to purchase 350,000 shares of Common Stock, subject to a three year
vesting schedule, which shall be exercisable at a price of $1.99 per share,
subject to the consummation and execution of such employment agreements, and the
receipt of appropriate shareholder authorization. See "Description of Securities
- -- Options Issued to Executives."
The Company has entered into an employment agreement with Glenda
Klein, which: (a) provides for Ms. Klein's employment as Senior Vice President,
Secretary, Treasurer and Chief Financial Officer through March 31, 1997; (b)
provides for base compensation to Ms. Klein at the rate of $90,000 per annum
during the first year of the term and $100,000 per annum during the second year
of
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the term; (c) provides for the grant of a five-year option to purchase 75,758
shares of Common Stock of the Company exercisable at a price of $5.00 per share;
(d) provides for the grant of a second five-year option on May 1, 1996, provided
that Ms. Klein is still employed by the Company on said date, entitling her to
purchase 37,879 shares of Common Stock of the Company at a price of $5.00 per
share; (e) obligates the Company to pay the premiums with respect to a term life
insurance policy payable to Ms. Klein's designated beneficiary in the aggregate
amount of $750,000 during the first year of the term and $1,000,000 during the
second year of the term; (f) obligates the Company to pay the premiums with
respect to a long-term disability policy in an amount sufficient to cover the
salary payable to Ms. Klein pursuant to the employment agreement; (g) obligates
the Company to lease a vehicle for use by Ms. Klein during the two-year term of
the employment agreement (which lease payments shall not exceed $800 per month)
and to pay all associated insurance, gasoline and maintenance costs for such
vehicle; (h) obligates the Company in the event of the termination of Ms.
Klein's employment in connection with a change in control of the Company to pay
to her the balance of the salary payable under the employment agreement plus an
additional $100,000 and to continue medical coverage for the balance of the
two-year term; (i) obligates the Company to provide to Ms. Klein and her spouse
medical and vision coverage; and (j) terminates upon Ms. Klein's death, and is
terminable by the Company upon her disability or in the event of her gross
malfeasance, gross misconduct, conviction of a felony, or other similar good
cause materially detrimental to the Company. The Company has also agreed to
indemnify Ms. Klein, pursuant to said agreement, to the fullest extent permitted
by applicable law with respect to all claims for compensatory damages (but not
punitive damages or the expenses incurred by her in defending against such
claims) alleged against Ms. Klein in any action, suit or proceeding commenced
against her by reason of her status as a present or former officer, director or
employee of the Company, or any subsidiary or affiliate of the Company,
including actions brought by or in the right of the Company to procure a
judgment in its favor See "Management - Executive Compensation - Stock Option
Plan;" and "Description of Securities - Options Issued to Executives."
COMPENSATION PAYABLE TO, AND OPTIONS ISSUED TO OTHER EXECUTIVES
In June 1995, the Board authorized the Company to pay salaries to
each of Messrs. Goldberg and Housman in the amount of $55,000. However, the
Company has not paid any portion thereof to either officer, although it is
anticipated that such payments will be made prior to the end of the current
fiscal year. In consideration of the services to be rendered by Messrs. Goldberg
and Housman without payment of salaries between June 1995 and the closing of the
IPO, the Company issued five year options to each of them to purchase 75,758
shares of Common Stock at an exercise price of $5.00 per share. Such options
were not issued pursuant to the Company's Incentive Stock Option Plan. See
"Description of Securities - Options Issued to Executives."
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<PAGE>
STOCK OPTION PLAN
The Company, pursuant to the shareholders' authorization, has
adopted (with effect from August 1, 1994) a Non-Qualified Stock Option Plan (the
"Plan") which provides for the issuance of options to purchase up to 151,515
shares of Common Stock to persons who are at the time of grant, employees
(including officers and directors who are employees) of, or consultants to, the
Company. The Plan must be administered by the Compensation Committee of the
Board of Directors of the Company. Such committee must consist of two
"non-employee directors," as such term is defined by Rule 16b-3 of the Exchange
Act ("Rule 16b-3").
The Plan, as modified with effect from November 4, 1994, further
provides for the automatic issuance of options to non-employee directors of the
Company pursuant to a formula which satisfies the requisites of Rule 16b-3. On
January 2 in each of 1997, 2000 and 2003 (each of which dates is hereinafter
called a "Regular Grant Date"), each non-employee director shall automatically
receive an option to purchase 15,000 shares of the Company's Common Stock (a
"Regular Option"), and such Regular Option shall vest and become exercisable on
the first, second and third anniversaries of such grant at the rate of 5,000
shares per anniversary, provided, that each person who becomes a director after
a Regular Grant Date, shall receive a Regular Option to purchase a pro rata
portion of 15,000 shares of Common Stock based upon the number of months
remaining until the next Regular Grant Date. Also in accordance with such
formula, on the date of each non-employee director's initial election to the
Board or, if such initial election shall have occurred prior to the date of
adoption of the Plan, then on said date of adoption, he or she shall
automatically receive an option to purchase a prorata portion of 15,000 shares
of Common Stock based upon the number of months remaining until the next Regular
Grant Date (an "Initial Option"). No Initial Option or Regular Option shall vest
or be exercisable unless the grantee shall have served continuously on the Board
during the year preceding the applicable vesting date.
Michael Barnea, Esq., a former director of the Company, is the
holder of 7,892 fully vested options. Boaz Harel and Mark Roth, Esq., who were
appointed to the Board in November 1996, and Richard Fried, who qualified for
receipt of a grant as a director upon cessation of his status as a Vice
President in November 1997, have received Initial Options to purchase 316 shares
of Common Stock. The grants to Messrs. Harel and Roth will not vest until
November 1997. The grant to Mr. Fried is fully vested. In addition, Messrs.
Fried, Harel and Roth will receive Regular Grants in January 1997. By reason of
the fact that Mrs. Lieber is deemed to be the beneficial owner of all the Common
Stock which her late husband owned, i.e., more than 10% of the total number of
shares of Common Stock outstanding, she is ineligible to receive any grants
under the Plan. See "Principal Security Holders." No other options have been
granted under the Plan as of the date of this Prospectus.
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The exercise price for all options issuable under the Plan must
be 100% of the fair market value of the Common Stock underlying the option at
the time of grant. Pursuant to the Plan, as long as the Common Stock is listed
on the Nasdaq SmallCap Market, its fair market value shall be equal to the
closing sales price thereof on the date of grant.
In November 1996, Glenda Klein received an option issued under
the Plan to purchase 75,000 shares of Common Stock at an exercise price of $1.99
per share.
Mrs. Lieber and Richard Fried, who are non-employee directors,
serve as the Compensation Committee of the Company's Board of Directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VIII of the Company's bylaws provide for the
indemnification of directors and officers to the fullest extent permitted by
law.
Section 722 of the New York Business Corporation Law (the "BCL")
provides that a corporation may indemnify an individual made party to a
proceeding because he is or was a director or officer in certain situations,
provided that the director acted in good faith for a purpose which he reasonably
believed to be in the best interests of the corporation. In addition, Section
723 of the BCL provides that a corporation shall indemnify a director or officer
who prevails entirely in the defense of any proceeding to which he was a party
because he is or was a director, against reasonable expenses incurred by him in
connection with the proceeding. Section 724 of the BCL provides that,
notwithstanding any action taken by the corporation, or by its shareholders or
directors to deny indemnification to any officer or director, he may apply for
and receive such indemnification, upon good cause shown, to the same extent
permitted under BCL Section 722 upon application for such relief to the
appropriate court.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
The Company maintains directors' and officers' liability
insurance providing for limits of $1,000,000 per occurrence.
The Company intends to enter into employment agreements with
Arthur H. Goldberg, Elie Housman, and it has entered into an employment
agreement with Glenda Klein, providing for the Company's indemnification of each
of such individuals to the fullest extent permitted by law. The Company has
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entered into indemnification agreements with its other directors which also
shall provide for indemnification to the fullest extent permitted by law. See
"Management - Employment Agreements."
DIRECTORS' COMPENSATION
Directors do not receive cash compensation for services rendered
to the Company in such capacity.
Non-employee directors are reimbursed for the reasonable costs of
travel to and from meetings of the Board of Directors.
CERTAIN TRANSACTIONS
In September 1994, Pioneer borrowed an aggregate of $411,000 and
paid interest thereon at 7.75% per annum with respect to $120,000 borrowed from
Tamar Lieber, the widow of Uri Lieber, at 10% per annum on $100,000 borrowed
from RDA Trading Company, Inc. a corporation solely owned by Michael Loewenthal,
one of the Company's shareholders, on $150,000 borrowed directly from Mr.
Loewenthal at 12% per annum, and on $41,000 borrowed from Hedy Goldberg, the
wife of Arthur H. Goldberg, a shareholder and Chairman of the Board and Chief
Executive Officer of the Company. $20,000 of such borrowings was repaid to Mrs.
Lieber in September, 1994, and the balance thereof, plus interest in the
aggregate amount of approximately $2,110, was repaid to the lenders on October
11, 1994. During the relevant period, the interest rate charged by UMB for funds
borrowed under Pioneer's credit line with that institution was 8.75%. Although,
Pioneer paid higher interest rates with respect to $291,000 of such borrowings
from Mrs. Goldberg, RDA and Mr. Loewenthal, it was not required to pay any fees
to such lenders. Accordingly, the actual cost of such funds was approximately
$480 less than such borrowings would have cost if effected under the UMB credit
line. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
In November 1995 the Company borrowed $35,000 from Glenda Klein,
$38,000 from Tamar Lieber and $40,000 from Dr. Theodore Reingold, a former
officer and director of Pioneer. Each of such loans earned interest at the prime
rate published from time to time by the Wall Street Journal plus 1/4% per annum,
pursuant to a revolving credit and security agreement which provided that
advances under such lines were secured by the mortgage liens created as a result
of the loans funded with such advances. Mrs. Klein was paid a fee of $588.17 to
cover the penalties she incurred from the early redemption of certificates of
deposit which were used to provide such loan funds. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
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<PAGE>
Although no specific measures to resolve conflicts of interest
have been formulated, the officers and directors of the Company have a fiduciary
obligation to deal fairly and in good faith with the Company. The Company's
management believes that the terms and conditions pertaining to each of the
foregoing transactions were comparable to and competitive with the terms and
conditions which it would have obtained if such transactions had been effected
with persons and entities unaffiliated with the Company. All ongoing and future
transactions between the Company and any of its affiliates will be no less
favorable to the Company than such transactions would be if consummated with
unaffiliated third parties, and will be approved by a majority of the Company's
disinterested directors. The directors intend to exercise reasonable judgment
and take such steps as they deem necessary under all of the circumstances in
resolving any specific conflict of interest which may occur and will determine
what, if any, specific measures, such as retention of an independent advisor,
independent counsel or special committee, may be necessary or appropriate. There
can be no assurance that the Company will employ any of such measures or that
conflicts of interest will be resolved in the best interest of the shareholders
of the Company.
The Company has agreed to enter into employment agreements with
Arthur H. Goldberg and Elie Housman, and it has entered into an employment
agreement with Glenda Klein, who are shareholders and directors, and
respectively, the Chairman and Chief Executive Officer, the President and Chief
Operating Officer and the Senior Vice President, Secretary, Treasurer and Chief
Financial Officer of the Company. See "Management -- Employment Agreements."
During the years ended March 31, 1995 and 1996, the Company paid
Glenda Klein's husband, Philip Klein, $10,284 and $815, respectively, for
accounting services rendered by him. Mr. Klein is a certified public accountant.
During the year ended March 31, 1995, the Company paid Glenda Klein's son,
Andrew Klein, $4,007 for office-administrative services which he rendered to the
Company. During the year ended March 31, 1996, the Company paid Oren Lieber, the
son of Uri and Tamar Lieber, $2,291 for office-administrative services which he
rendered to the Company.
In accordance with the underwriting agreement executed by the
Company with National in connection with the IPO, National is entitled to
designate one member of the Company's Board during the three year period which
commenced on August 16, 1996. Mark Roth, Esq. was appointed to the Board as
National's designee on November 11, 1996. See "Management -- Executive Officers
and Directors."
Alan Mann, Arthur's Goldberg's son in law, owns 25% of the
outstanding common stock of Trans Lending. Mr. Goldberg disclaims beneficial
ownership of such shares, as well as any voting or investment powers pertaining
thereto. Mr. Mann has granted an irrevocable proxy to Kenneth Germain to vote
such shares on all matters coming before a vote of the shareholders of Trans
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<PAGE>
Lending during the three year term of Mr. Germain's employment agreement with
Trans Lending. See "Business -- The Company's Acquisition of Trans Lending."
PRINCIPAL SECURITY HOLDERS
The following table sets forth the holdings of the Common Stock
of the Company as of the date of this Prospectus by (1) each person or entity
known to the Company to be the beneficial owner of more than five percent (5%)
of the outstanding shares of common stock of the Company; (2) each director and
named executive officer; and (3) all directors and executive officers as a
group. All of the holders of the Company's Common Stock are entitled to one vote
per share. See "Description of Securities."
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------
Name and Address of Number of Shares Percent Owned Prior Percent Owned After
Beneficial Owner Beneficially Owned to Offering (1) Offering (2)
- ------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C>
Tamar Lieber (3) 322,122 22.3 6.2
Leedan Systems (4) 176,136 12.2 3.4
Boaz Harel (5) * * *
Mark Roth (6) * * *
Elie Housman (7) 131,411 (8) 8.6 2.5
Arthur H. Goldberg (9) 168,513 (10) 11.1 3.2
Richard Fried (11) 12,362 (12) * *
Glenda Klein (13) 191,046 (14) 13.2 3.5
All Directors and
Executive Officers
as a Group (6 persons) 1,165,607 (15) 65.4 21.0
</TABLE>
- --------------------
* Represents less than one percent
(1) Based on 1,442,272 shares of Common Stock outstanding as of the date of this
Prospectus.
(2) Based upon 5,192,272 shares of Common Stock outstanding after the Offering.
Does not include (a) up to 1,125,000 shares of Common Stock issuable in the
events that (i) the Underwriters' over-allotment option is fully exercised; and
(ii) the Class A Warrants to be issued in connection therewith are fully
exercised; or (b) up to 750,000 shares of Common Stock issuable in the events
that (i) the Representative's
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<PAGE>
Warrants are fully exercised; and (ii) the Class A Warrants to be issued in
connection therewith are fully exercised. See "Underwriting."
(3) Mrs. Lieber's address is 160 West 66th Street, New York, New York.
(4) The address of Leedan Systems is c/o Harel & Partners, 555 Madison Avenue,
New York, New York. The Company believes that Leedan Systems is controlled by
Ezra Harel, the brother of Boaz Harel.
(5) Mr. Harel's address is c/o Harel & Partners, 555 Madison Avenue, New York,
New York.
(6) Mr. Roth's Address is c/o National Securities Corporation, 1001 Fourth
Avenue, Seattle, Washington.
(7) Mr. Housman's address is 535 Madison Avenue, 28th floor, New York, New York.
(8) Includes 75,758 shares which Mr. Housman has the right to acquire within 60
days from the date hereof upon exercise of an option. Percentages shown assume
full exercise of such option. Does not include 350,000 shares of Common Stock
which shall be issuable upon exercise of a five year option to be granted to Mr.
Housman upon consummation of an employment agreement with the Company, subject
to approval by the Company's shareholders under New York law, 18,551 shares of
the Company's Common Stock held by Daniel Housman, and 18,551 shares of the
Company's Common Stock held by Jon Housman, who are Mr. Housman's sons. Mr.
Housman disclaims beneficial ownership of such shares, as well as any voting or
investment powers pertaining thereto. See "Certain Transactions."
(9) Mr. Goldberg's address is 375 Park Avenue, New York, New York. See "Certain
Transactions."
(10) Includes 75,758 shares which Mr. Goldberg has the right to acquire within
60 days from the date hereof upon exercise of an option. Percentages shown
assume full exercise of such option. Does not include 350,000 shares of Common
Stock which shall be issuable upon exercise of a five year option to be granted
to Mr. Goldberg upon consummation of an employment agreement with the Company,
subject to approval by the Company's shareholders under New York law.
(11) Mr. Fried's address is 3 Centennial Drive, Suite G, Peabody, Massachusetts.
(12) Includes 316 shares which Mr. Fried has the right to acquire within 60 days
from the date hereof upon exercise of an option.
(13) Ms. Klein's address is 6660 Reseda Boulevard, Suite 108, Reseda,
California.
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(14) Includes 188,637 shares which Ms. Klein has the right to acquire within 60
days from the date hereof upon exercise of an option. Does not include 1,205
shares of Common Stock held by Ms. Klein's daughter, Allyson. Ms. Klein
disclaims beneficial ownership with respect to such shares, as well as any
voting or investment powers pertaining thereto. Percentages shown assume full
exercise of all of such options.
(15) Includes 340,469 shares which the holders thereof have the right to acquire
within 60 days from the date hereof upon exercise of an option held by them.
Percentages shown assume full exercise of all of such options.
DESCRIPTION OF SECURITIES
GENERAL
The Company, a New York corporation, is authorized to issue
25,000,000 shares, of which 20,000,000 may be Common Stock, $.01 par value, and
5,000,000 may be preferred shares,$.01 par value, which may be authorized for
issuance by the Board and issued without further action by the shareholders in
classes or series possessing such designations, powers, preferences and
relative, participating, optional or other special rights within each class or
series, and further possessing such qualifications, limitations and restrictions
as the Board may determine, subject to any limitations imposed thereon by the
Company's Certificate of Incorporation.
UNITS
Each Unit consists of one share of Common Stock and one Class A
Warrant.
COMMON STOCK
As of the date of this Prospectus, 1,442,272 shares of Common
Stock are issued and outstanding.
Except as otherwise required by law, each holder of Common Stock
is entitled to one vote per share on all matters on which shareholders are
entitled to vote. There are no cumulative voting rights regarding elections of
directors. Holders of shares of Common Stock are entitled to share pro rata in
dividends, if any, as may lawfully be declared on the Common Stock from time to
time by the Company's Board of Directors.
PREFERRED STOCK
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The Board of Directors has the authority, without further action
by the shareholders, to issue up to 5,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, including divided rights, conversion rights, voting rights terms of
redemption, liquidation preferences and the number of shares constituting any
series and the designation of such series. The issuance of preferred stock
could, among other things, adversely affect the voting power of holders of
Common Stock and could have the effect of delaying, deferring or preventing a
change in control of the Company.
As of the date of this Prospectus, no shares of preferred stock
of any class or series have been issued, or have been authorized to be issued by
the Board. The Company has no present intention to issue any preferred shares in
the foreseeable future, However, no assurance can be given regarding the change
of such intentions in the event that the Board deems it appropriate to issue
such securities in connection with any transaction or other circumstance which
is not presently known to the Board.
CLASS A WARRANTS
The redeemable Class A Warrants will be exercisable at a price of
the Market Price per share at any time during the five year period commencing
on , 1997 and ending on , 2002 (the "Exercise Period"). Unless
exercised, the Class A Warrants will automatically expire at 3:00 p.m., New
York time on , 2002.
As used in this Prospectus, the term Market Price means the lower
of the last sale price of the Common Stock on the Nasdaq SmallCap Market on the
trading day immediately preceding the date of this Prospectus, or the average of
the last sales prices of the Common Stock on the Nasdaq SmallCap Market for the
30 trading days immediately preceding the date of this Prospectus.
The Class A Warrants, which will be issued pursuant to a warrant
agreement between the Company and American Stock Transfer & Trust Company, will
be in registered form and will be saleable, assignable, and conveyable
separately and apart from the Units and Common Stock.
Commencing one year after the date of this Prospectus and
continuing through the end of the Exercise Period, the Company, at its option,
upon 30 days' written notice, may redeem the Class A Warrants at a price of $.10
per Class A Warrant, provided that the closing sale price of the Common Stock as
quoted on the principal market on which such shares shall then be trading shall
be not less than 140% of the Market Price per share during any period of 30
consecutive trading days ending on the third day preceding the date of such
notice; and further provided that the Class A Warrant holders may exercise their
Class A Warrants at any time prior to the redemption date specified in such
notice.
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The Class A Warrants contain protections against dilution
affecting both the exercise price of, and number of shares of Common Stock
purchasable under, such warrants. Such protections shall become operative upon
(a) any issuance of Common Stock, warrants or other securities convertible into
Common Stock at a price below the then market value of the Common Stock during a
period of five years from the date of this Prospectus; (b) any issuance of
Common Stock, warrants or other securities convertible into Common Stock as a
dividend; or (c) a subdivision or combination of the outstanding Common Stock,
warrants or other securities convertible into Common Stock as the result of a
merger, consolidation, spin-off or otherwise.
The holders of the Class A Warrants have no right to vote on
matters submitted to the shareholders of the Company and have no right to
receive dividends. The holders of the Class A Warrants are not entitled to share
in the assets of the Company in the event of liquidation, dissolution, or the
winding up of the Company's affairs.
The Class A Warrants issued pursuant to this Prospectus may not
be exercised unless the Company maintains an effective registration statement
covering the shares of Common Stock issuable upon exercise of the Class A
Warrants with the SEC and the various securities administrators for the states
in which the Class A Warrant holders reside, or unless issuance of such shares
of Common Stock is exempt from registration. Although the Company will make
every reasonable effort to maintain such registration, no assurances can be
given that the Company will be successful in this regard.
The Class A Warrants may not be exercised after ,
1997 (nine months after the date of this Prospectus) unless and until a
Post-Effective Amendment has been filed with the SEC and becomes effective.
Although the Company has undertaken and intends to file and keep current a
prospectus that will permit the purchase and sale of the Common Stock underlying
the Class A Warrants, there can be no assurance that the Company will be able to
do so.
The Company's transfer agent, American Stock Transfer & Trust
Company, as warrant agent, will be responsible for all record-keeping and
administrative functions in connection with the Class A Warrants. A copy of the
form of Class A Warrant Agreement is filed as an exhibit to the Registration
Statement. The discussion of the Class A Warrants herein does not purport to
be complete and is qualified in its entirety by reference to the Warrant
Agreement.
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IPO WARRANTS
In connection with its IPO, the Company issued 690,000 redeemable
warrants (the "IPO Warrants"), each of which entitles the holder thereof to
purchase one share of Common Stock at an exercise price of $5.50 per share at
any time during the four year period which commenced on August 13, 1996 and
which will end on August 12, 2000.
The IPO Warrants, were issued pursuant to a warrant agreement
between the Company and American Stock Transfer & Trust Company, are in
registered form and are saleable, assignable, and conveyable separately and
apart from the Common Stock.
Unless exercised, the IPO Warrants will automatically expire at
3:00 p.m., New York time on August 12, 2000.
Commencing August 12, 1998 and continuing through August 12,
2000, the Company, at its option, upon thirty (30) days' written notice, may
redeem the IPO Warrants at a price of $.05 per IPO Warrant, provided that the
closing sale price of the Common Stock as quoted on the principal market on
which such shares shall then be trading shall be not less than $7.50 per share
during any period of twenty (20) consecutive trading days ending on the tenth
day preceding the date of such notice; and further provided that the IPO Warrant
holders may exercise their IPO Warrants at any time prior to the redemption date
specified in such notice. Investors should be aware that closing prices do not
necessarily reflect actual purchase or sale transactions.
The holders of the IPO Warrants are protected against dilution of
their interests represented by the number of shares of Common Stock underlying
the IPO Warrants upon the occurrence of certain events, including share
dividends, share splits, mergers, reclassification, and the sale by the Company
of Common Stock below the then market price (other than employee benefits and
stock option plans).
The holders of the IPO Warrants have no right to vote on matters
submitted to the shareholders of the Company and have no right to receive
dividends. The holders of the IPO Warrants are not entitled to share in the
assets of the Company in the event of liquidation, dissolution, or the winding
up of the Company's affairs.
OPTIONS ISSUED TO EXECUTIVES
In April 1995, the Company issued a five year option to Mrs.
Klein pursuant to her employment agreement to purchase 75,758 shares of Common
Stock at an exercise price of $5.00 per share. In June, 1995, the Company issued
five year options to each of Messrs. Goldberg and Housman to purchase 75,758
shares of Common Stock at an exercise price of $5.00 per share. In May 1996, the
Company
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issued a five year option to Mrs. Klein pursuant to her employment agreement to
purchase 37,879 shares of Common Stock at an exercise price of $5.00 per share.
The number of shares of Common Stock purchasable upon exercise of
such options and the purchase price shall be subject to adjustment to protect
the holder thereof against dilution in the event that the Company shall (i) pay
a dividend in, or make a distribution of, shares of Common Stock on its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a lesser number of shares, or (iv) reorganize or consolidate with or
merge into another corporation or transfer all or substantially all of its
assets to another entity.
The holders of such options shall not be entitled to exercise any
voting rights or any other rights of a shareholder of the Company unless and
until the holder exercises the option.
In November 1996, the Board granted to each of Messrs. Goldberg
and Housman, subject to the consummation of written employment agreements with
each of them, and such approvals from the Company's shareholders as part of the
consideration for their agreement to enter into such employment agreements, five
year options to purchase 350,000 shares of Common Stock at an exercise price of
$1.99 per share. Such options shall vest over a three year period, and shall be
substantially identical to the form of option previously issued to them.
REPRESENTATIVE'S WARRANTS
Upon the completion of the Offering, the Company will sell to the
Representative, individually and not as representative of the Underwriters, the
Representative's Warrants for consideration of one mil ($.001) per
Representative's Warrant, exercisable for 375,000 Units in the aggregate. Each
Representative's Warrant shall (i) entitle the holder thereof to purchase one
Unit at an exercise price equal to 120% of the public offering price per Unit
offered by the Company hereby; (ii) be exercisable for a period of four years
commencing one year after the date of this Prospectus; and (iii) contain
appropriate anti-dilution provisions. Such anti-dilution provisions include
protection against dilution in both price and percentage of the Company (to the
extent permitted by the rules and regulations of the NASD) upon (a) any issuance
of Common Stock, warrants or other securities convertible into Common Stock at a
price below the then market value of the Common Stock during a period of five
years from the date of this Prospectus; (b) any issuance of Common Stock,
warrants or other securities convertible into Common Stock as a dividend; or (c)
a subdivision or combination of the outstanding Common Stock, warrants or other
securities convertible into Common Stock as the result of a merger,
consolidation, spin-off or otherwise.
During the four-year period commencing one year from the date of
this Prospectus, the Company is required to use its best efforts to assist the
holders of the
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Representative's Warrants and the underlying securities in publicly selling such
Representative's Warrants and the underlying securities, when and if requested
by the Representative or the holders of a majority thereof. These best efforts
include the preparation and filing of one or more registration statements during
such four-year period at the demand of the holders of not less than a majority
of the Representative's Warrants or underlying securities, and the maintenance
of the effectiveness thereof for at least nine months, the first of which such
filings is at the Company's sole cost and expense, including, without
limitation, blue sky fees and expenses and the fees and expenses (not to exceed
$25,000) of one counsel to the holders of the Representative's Warrants or
underlying securities, but not including any underwriting or selling
commissions, discounts or other charges of any broker-dealer acting on behalf of
such holders. In addition, for the period from the first through the seventh
anniversary of the date of this Prospectus, the Company is required to notify
all holders of the Representative's Warrants and underlying securities of the
Company's intention to undertake another public offering of the Company's
securities (whether by the Company or by any security holder of the Company). If
requested by any holder of Representative's Warrants, the Company is required to
include in such public offering any Representative's Warrants and underlying
securities of such requesting holder at the Company's sole cost and expense
(other than any applicable underwriting discounts or commissions, but including,
without limitation, the fees and disbursements of counsel for any holder of
Representative's Warrants and blue sky fees and expenses) and maintain the
effectiveness of any registration statement relating to such public offering for
at least nine months after the date such registration statement is declared
effective. The Representative's Warrants will not be transferable, saleable,
assignable or hypothecatable for one year from the date of this Prospectus,
except that they may be assigned in whole or in part during such year to any
NASD member participating in the Offering or any officer or representative of
the Representative or any such NASD member.
For the life of the Representative's Warrants, the holders
thereof have the opportunity to profit from a rise in the market price of the
Common Stock without assuming the risk of ownership of the shares of Common
Stock issuable upon the exercise of the Representative's Warrants (and the Class
A Warrants issuable upon exercise thereof), with a resulting dilution in the
interests of the Company's shareholders by reason of exercise of warrants at a
time when the exercise price is less than the market price for the Common Stock.
Further, the terms on which the Company could obtain additional capital during
the life of the Representative's Warrants may be adversely affected. The holders
of the Representative's Warrants may exercise their warrants at a time when the
Company would in all likelihood, be able to obtain any needed capital on terms
more favorable than those provided for by the Representative's Warrants.
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IPO UNDERWRITER'S WARRANTS
In connection with its IPO, the Company issued to National
Securities Corporation, the underwriter of the IPO, underwriter's warrants (the
"IPO Underwriter's Warrants") to purchase from the Company up to 60,000 shares
of Common Stock at an exercise price of $6.00 per share and 60,000 IPO Warrants
at an exercise price equal to $.12 per Warrant. The IPO Underwriter's Warrants
are exercisable during the four year period which will commence on August 12,
1997, and are not transferable, except to either a partner or an officer of the
IPO Underwriter or by will or by operation of law.
UMB OPTION
In connection with the extension of the Company's warehousing
line of credit with UMB from $2,500,000 to $4,000,000 which became effective in
February, 1996, the Company granted to UMB a five year option to purchase up to
41,271 shares of Common Stock at an exercise price of $5.50 per share. Such
option shall vest at the rate of 25% of the aggregate amount of such shares on
August 16 of each year commencing in 1997 and continuing through 2000, and shall
expire as to any unexercised portion thereof if, at any time during the term of
the option, said line of credit is terminated, canceled or not renewed for any
reason.
The number of shares of Common Stock purchasable upon exercise of
the option and the purchase price shall be subject to adjustment to protect the
holder thereof against dilution in the event that the Company shall (i) pay a
dividend in, or make a distribution of, shares of Common Stock on its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a lesser number of shares, or (iv) reorganize or consolidate with or
merge into another corporation or transfer all or substantially all of its
assets to another entity.
UMB shall not be entitled to exercise any voting rights or any
other rights of a shareholder of the Company unless and until the holder
exercises the option.
REGISTRATION RIGHTS
The Representative's Warrants confer certain registration rights
upon the holders thereof. See "-- Representative's Warrants."
The IPO Underwriter's Warrants accord to the holders thereof
rights to register the Common Stock and IPO Warrants underlying the IPO
Underwriter's
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Warrants under the Securities Act. The warrants issuable upon exercise of the
Underwriter's Warrants are identical in all respects to the IPO Warrants.
The options granted to Arthur H. Goldberg, Elie Housman, Glenda
Klein and UMB accord "piggyback" registration rights to the holders thereof
which obligate the Company, during a period of five years from the dates of
issuance of such options, to include, upon request of the holders thereof, the
shares of Common Stock underlying such options in any registration of capital
stock under the Securities Act which the Company may undertake (other than (a)
in an offering in which the underwriter thereof may object to such registration;
(b) in a merger; or (c) pursuant to SEC Form S-8).
These registration rights could result in substantial future
expense to the Company and could adversely affect the Company's ability to
complete future equity or debt financings. Furthermore, the registration and
sale of securities of the Company held by or issuable to the holders of
registration rights, or even the potential of such sales, could have an adverse
effect on the market price of the securities offered hereby.
NASDAQ SMALLCAP MARKET LISTING; BOSTON STOCK EXCHANGE AND PACIFIC STOCK EXCHANGE
LISTING APPLICATIONS
The Company's Common Stock and the warrants issued in connection
with its IPO are listed for trading in the Nasdaq SmallCap Market under the
symbols PCFC and PCFCW. The Company has applied for additional listing of the
Common Stock which are components of the Units being offered hereby, and has
applied for inclusion of the Units and the Class A Warrants in the Nasdaq
SmallCap Market . It has also applied for listing of the Units, Common Stock and
Class A Warrants on the Boston Stock Exchange and the Pacific Stock Exchange. It
is anticipated that the Units and Class A Warrants will trade on the Nasdaq
SmallCap Market under the symbols PCFCU and PCFC[A], upon official notice of
issuance. It is also anticipated that the Units, Common Stock and Class A
Warrants will trade on the Boston Stock Exchange and the Pacific Stock Exchange
under the symbols, [ ], [ ] and [ ], and [ ], [ ] and [ ],
respectively, upon official notice of issuance.No assurance can be given that
the Company's application for listing of the Units and/or Class e.No A Warrants
on the Nasdaq SmallCap Market, or its applications for listing of the Units,
Common Stock and/or Class A Warrants on the Boston Stock Exchange and/or the
Pacific Stock Exchange will be granted.
Recently, a proposal has been made to increase the continued
listing criteria on the Nasdaq SmallCap Market. If implemented as proposed,
stricter criteria for continued listing on the Nasdaq SmallCap Market would be
imposed, including the implementation of a $2,000,000 net tangible assets test,
requirements for a greater number of publicly held securities and a higher
market value for such securities and the implementation of new corporate
governance criteria. No assurance can be given that such proposal will be
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adopted, or, if adopted, will be adopted in its current form.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005, serves as the transfer agent and registrar of the Common
Stock, and as warrant agent of the Class A Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have
outstanding [ ] shares of Common Stock ([ ] shares if the
Underwriters' over-allotment option is exercised in full). Of these shares,
[ ] shares will be freely tradeable without restriction under the
Securities Act. The remaining [ ] shares of Common Stock held by existing
shareholders are restricted securities within the meaning of Rule 144. Subject
to compliance with the provisions of Rule 144, said shares presently are
eligible for sale to the public, notwithstanding the fact that such shares have
not been registered under the Securities Act.
In general, under Rule 144 as currently in effect, an affiliate
of the Company, or a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least two years but less than three
years, will be entitled to sell in any three month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock (approximately 51,922 shares immediately after the Offering) or
(ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least three years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations
described above. Rule 144A under the Act as currently in effect permits the
immediate sale of restricted shares to certain qualified institutional buyers
without regard to volume restrictions. The Commission has proposed an amendment
to Rule 144 which, if adopted, would reduce the above mentioned two year and
three year holding periods to one year and two years, respectively.
Pursuant to certain restrictions upon sale imposed by a "lockup"
agreement which each of such existing shareholders executed and delivered to the
underwriter of the IPO as a condition to the closing of that offering, none of
said 802,272 shares will be eligible for sale in the public market until August
15, 1997, provided that, after May 15, 1997, each of the holders of such shares
may sell up to
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10% of his, her or its shares pursuant to Rule 144. In addition to the foregoing
lockup restrictions, the Representative has required, as a condition to the
closing of the Offering, that each of the Company's directors, officers, key
employees and holders of 2% or more of the Common Stock must execute written
lockup agreements providing that, for a period of 12 months from the date of
this Prospectus, they shall not offer, register, sell, contract to sell, grant
an option for the sale of, issue, assign, transfer or otherwise dispose of any
of the Company's securities held by them without the Representative's prior
written consent. The lockup agreements will have no effect on the date on which
shares become eligible for sale pursuant to Rule 144.
There has been no prior market for the Units or the Class A
Warrants, and there can be no assurance a significant public market for such
securities will develop or be sustained after the offering. Sales of substantial
amounts of Units, Common Stock or Class A Warrants in the public market could
adversely affect the market prices of the Company's securities.
UNDERWRITING
The underwriters named below, for whom LT Lawrence & Co., Inc. is
acting as the Representative (the "Underwriters"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company, and the Company has agreed to sell to the Underwriters, the
respective number of Units set forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF UNITS
------------ --------
<S> <C>
LT Lawrence & Co., Inc.................................
---------
Total 3,750,000
---------
---------
</TABLE>
The Company is obligated to sell, and the Underwriters are
obligated to purchase, all of the Units offered hereby through the
Representative, if any are purchased.
The Company has been advised by the Representative that, the
Underwriters propose initially to offer the Units to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow a
concession of not more than $. per Unit to selected dealers; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $. per Unit to certain other dealers. After the consummation of the
Offering, the concession to selected dealers and the reallowance to other
dealers may be changed by the Underwriters. The Units are offered subject to
receipt and acceptance by the Underwriters and to certain other conditions,
including the right to reject orders in whole or in part.
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The Company has granted to the Underwriters an option to purchase
up to 562,500 additional Units solely to cover over-allotments, if any. The
option is exercisable within 45 days from the date of this Prospectus at the
price to public, less the underwriting discounts and commissions set forth on
the cover page of this Prospectus. To the extent the Underwriters exercise
the option, the Underwriters will be committed, subject to certain conditions,
to purchase the additional Units.
See "Shares Eligible For Future Sale" for a description of
certain lock-up agreements.
The Company has agreed to indemnify the Underwriters against, or
contribute to the losses arising from, certain liabilities, including
liabilities arising under the Securities Act.
The Company has paid the Representative $50,000 on account of the
Underwriters' expenses in connection with the Offering to be applied to a
non-accountable expense allowance equal to 3% of the aggregate offering price of
the Units to be sold in the Offering.
The Company has agreed to sell to the Representative, for an
aggregate of $375, Representative's Warrants to purchase 375,000 Units, at an
exercise price per Unit equal to 120% of the public offering price set forth on
the cover page of this Prospectus. The Representative's Warrants will be
exercisable for a period of four years, commencing one year from the date of
this Prospectus, and will contain anti-dilution provisions providing for
appropriate adjustment of the exercise price and number of Units that may be
purchased upon the occurrence of certain events. The Representative's Warrants
may not be sold, transferred or pledged until one year from the date of this
Prospectus, except that they may be transferred, in whole or in part, at any
time to, among others, any officer, director or stockholder of the
Representative or successors to the Representative. Holders of the
Representative's Warrants have demand and piggyback registration rights with
respect to the Representative's Warrants and the underlying securities. See
"Description of Securities -- Registration Rights."
The Representative was organized in February 1992 and was
registered as a broker-dealer in 1994. Prior to this Offering, the
Representative has participated as a sole or co-manager in four public
offerings. See "Risk Factors--Lack of Underwriting History."
The Representative has informed the Company that the Underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Representative has agreed to pay a finder's fee of
approximately $30,000 to Andrew Racz, who is unaffiliated with the Company or
the Representative.
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The Company has agreed that, during the five year period
commencing on the date of closing of the Offering, the Representative shall have
the right to appoint two members of the Company's Board of Directors, and to
designate one person to attend all meetings of the Company's Board of Directors.
The Representative has advised the Company that, as of the date of this
Prospectus, the Representative has not made any determination as to whether, and
if so, when, it may exercise its right to appoint any director.
Upon the exercise of any Class A Warrants, which exercise was
solicited by the Representative, and to the extent not inconsistent with the
guidelines of the NASD and the Rules and Regulations of the Commission, the
Company has agreed to pay the Representative a commission which shall not exceed
5% of the aggregate exercise price of such Class A Warrants in connection with
bona fide services provided by the Representative relating to any Class A
Warrant solicitation. In addition, the individual must state in writing (either
within or accompanying the warrant exercise notice) whether the exercise of the
individual's warrants was solicited by the Representative in order for the
Representative to be entitled to such Class A Warrant solicitation fee. Pursuant
to the Warrant Agreement, the warrant agent will monitor the warrant exercise
notices to determine whether a Class A Warrant holder's exercise was solicited
by the Representative. However, no compensation will be paid to the
Representative in connection with the exercise of the Class A Warrants if (a)
the market price of the Common Stock is lower than the exercise price; (b) the
Class A Warrants were held in a discretionary account; or (c) the Class A
Warrants are exercised in an unsolicited transaction. The Company has agreed
not to solicit the exercise of any Class A Warrants other than through the
Representative unless the Representative is legally unable to solicit such
exercise, in which event the Company may solicit such exercise, either by itself
or with the assistance of a third party.
The Underwriters and certain selling group members that currently
act as market makers for the Common Stock may engage in "passive market making"
in the Company's securities on the Nasdaq SmallCap Market in accordance with
Rule 10b-6A under the Exchange Act ("Rule 10b-6A"). Rule 10b-6A permits, upon
satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also Nasdaq market makers in the
security being distributed to engage in limited market making activities during
the period when Rule 10b-6A would otherwise prohibit such activity. In general,
under Rule 10b-6A, any underwriter or selling group member engaged in passive
market making activities in the Company's securities (i) may not effect
transactions in, or display bids for, such securities at a price that exceeds
the highest bid for such securities displayed on Nasdaq by a market maker that
is not participating in the distribution of such securities, (ii) may not have
net daily purchases of such Company securities during the later of nine business
days before the commencement of offers or sales of the securities to be
distributed or the time such person becomes a participant in the distribution
that exceed 30% of the average daily trading volume in such securities for the
two full consecutive calendar months
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immediately preceding the filing date of the Registration Statement of which
this Prospectus is a part and (iii) must identify its bids as made by a passive
market maker.
The foregoing is a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the forms of Underwriting Agreement and Representative's Warrant Agreement,
copies of which are on file as exhibits to the Company's Registration Statement
of which this Prospectus forms a part. See "Additional Information."
LEGAL MATTERS
The validity of the Units, Common Stock and Class A Warrants
being offered hereby will be passed upon for the Company by Hall Dickler Kent
Friedman & Wood, LLP. Certain legal matters in connection with the Units, Common
Stock and Class A Warrants offered hereby will be passed upon for the
Representative by Rubin Baum Levin Constant & Friedman.
EXPERTS
The financial statements of Pioneer Commercial Funding Corp. for
the years ended March 31, 1995 and 1996 included in this Prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
AVAILABLE INFORMATION
The Company has filed a registration statement on Form SB-2 (the
"Registration Statement") under the Securities Act which includes this
Prospectus. This Prospectus, which constitutes a part of the Registration
Statement does not contain all the information set forth in the Registration
Statement and exhibits thereto. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and the exhibits thereto. All of these documents may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington D.C. 20549; and at the
SEC's Regional Office at Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies may be obtained at the prescribed rates from the Public
Reference Section of the SEC at its principal office in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other
83
<PAGE>
<PAGE>
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended, and in accordance therewith
electronically files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C.; and 7 World Trade Center, Suite 1300, New
York, New York; and copies of such material can be obtained from the Public
Reference Section of the Commission, Washington, D.C. at prescribed rates. In
addition thereto, such reports, proxy and information statements and other
information may be accessed and retrieved from the Website maintained by the
Commission at http://www.sec.gov.
The Common Stock is listed on the Nasdaq SmallCap Market. The
Company has applied for listing of the Units and Class A Warrants on said
Market. The Company has also applied for listing of the Units, Common Stock and
Class A Warrants on the Boston Stock Exchange and the Pacific Stock Exchange.
Copies of the reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Nasdaq Stock Market at 1735 K Street, N.W.,
Washington, D.C. 20006.
84
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................. F-1
Balance Sheet as of March 31, 1996................................... F-2
Statements of Operations for the
years ended March 31, 1995 and 1996.................................. F-3
Statements of Changes in Shareholders'
Equity for the years ended March 31,
1995 and 1996....................................................... F-4
Statements of Cash Flows for the
years ended March 31, 1995 and 1996.................................. F-5
Notes to Financial Statements
March 31, 1995 and 1996............................................. F-6
Balance Sheet as of September 30, 1996 (Unaudited)................... F-19
Statements of Operations for the Three and Six Month
Periods ended September 30, 1996 and 1995 (Unaudited)................ F-21
Statement of Changes in Shareholders' Equity for
the Six Month Period ended September 30, 1996 (unaudited)............ F-21
Statements of Cash Flows for the Six Months
ended September 30, 1996 and 1995 (Unaudited)........................ F-22
Notes to Unaudited Financial Statements.............................. F-23
</TABLE>
85
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Pioneer Commercial Funding Corp.:
We have audited the accompanying balance sheet of Pioneer Commercial Funding
Corp. (a New York corporation) as of March 31, 1996, and the related statements
of operations, changes in stockholders' equity and cash flows for the years
ended March 31, 1995 and 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pioneer Commercial Funding
Corp. as of March 31, 1996, and the results of its operations and its cash flows
for the years ended March 31, 1995 and 1996 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As further discussed in Note 1 to the
financial statements, the Company has incurred substantial losses for the period
since its emergence from bankruptcy in April 1993 through March 31, 1996 which
has resulted in the deterioration of the Company's financial condition. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are also described in
Note 1. The financial statements do not include any adjustments that may result
from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
New York, New York
July 1, 1996
F-1
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
BALANCE SHEET
MARCH 31, 1996
<TABLE>
<S> <C>
ASSETS
------
CASH AND TEMPORARY CASH INVESTMENTS $ 98,349
LOANS RECEIVABLE, MORTGAGE WAREHOUSE 3,512,775
ACCRUED INTEREST AND FEES RECEIVABLE 30,007
DEFERRED COSTS OF EQUITY OFFERING 445,731
FIXED ASSETS:
Furniture and equipment 50,370
Proprietary computer software 469,655
-----------
520,025
Less- Accumulated depreciation and amortization 302,035
-----------
Net fixed assets 217,990
-----------
OTHER ASSETS 26,087
-----------
Total assets $ 4,330,939
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Loans payable, mortgage warehouse $ 3,254,235
Revolving lines of credit 79,400
Bridge financing (notes totaling $100,000 less unamortized
discount of $37,500) 62,500
Accrued interest payable 43,564
Due to mortgage banking companies 20,917
Accounts payable and accrued expenses 261,163
Deferred legal fees 76,743
-----------
Total liabilities 3,798,522
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; authorized 5,000,000 shares;
835,000 shares issued and outstanding 8,350
Additional paid-in capital 8,598,634
Accumulated deficit (8,074,567)
-----------
Total stockholders' equity 532,417
-----------
Total liabilities and stockholders' equity $ 4,330,939
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-2
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
INCOME:
Interest income $ 99,453 $ 76,957
Commissions and fees 7,500 4,500
Processing fees 65,073 15,733
---------- ----------
Total income 172,026 97,190
---------- ----------
DIRECT COSTS:
Interest expense, warehouse loan and revolving line of credit 58,117 81,104
Interest expense, bridge financing 142,748 79,231
Bank charges and fees 7,645 9,711
Bank processing fees 2,790 4,593
---------- ----------
Total direct costs 211,300 174,639
---------- ----------
LOSS BEFORE OPERATING EXPENSES (39,274) (77,449)
OPERATING EXPENSES 544,462 433,709
---------- ----------
Loss from operations (583,736) (511,158)
---------- ----------
OTHER INCOME (EXPENSE):
Loss on retirement of assets, net of gains on sales (4,279) -
Interest income -- other 5,021 12,685
Interest expense -- other (4,712) (4,712)
Other income - 24,570
---------- ----------
Total other income (expense), net (3,970) 32,543
---------- ----------
LOSS BEFORE INCOME TAXES (587,706) (478,615)
PROVISION FOR INCOME TAXES 1,449 1,188
---------- ----------
Net loss $ (589,155) $ (479,803)
========== ==========
LOSS PER SHARE OF COMMON STOCK $ (.78) $ (.58)
WEIGHTED AVERAGE NUMBER OF SHARES 753,053 826,644
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Subscriptions Deferred Accumulated Stockholders'
Stock Capital Receivable Compensation Deficit Equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, March 31, 1994 $ 6,595 $ 7,915,139 $ (153,170) $ (160,750) $(7,000,655) $ 607,159
Issuance of 45,033 shares of Class A
preferred stock of Pioneer equivalent
to 45,033 shares of common stock of
the Company (postmerger) 451 199,549 -- -- -- 200,000
Issuance of 176,136 shares of Class B
common stock of Pioneer equivalent
to 176,136 shares of common stock of
the Company (postmerger) 1,761 498,239 -- -- -- 500,000
Payment of subscriptions -- -- 153,170 -- -- 153,170
Amortization of deferred compensation
for consulting services -- -- -- 96,000 -- 96,000
Dividends paid on preferred stock of
Pioneer prior to the merger -- -- -- -- (4,954) (4,954)
Cancellation of contract for consulting
services effective September 30, 1994
and return and cancellation of related
55,682 common shares (557) (64,193) -- 64,750 -- --
Net loss for the period -- -- -- -- (589,155) (589,155)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1995 8,250 8,548,734 -- -- (7,594,764) 962,220
Issuance of 10,000 shares of the Company's
common stock in connection with the
bridge financing 100 49,900 -- -- -- 50,000
Net loss for the period -- -- -- -- (479,803) (479,803)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1996 $ 8,350 $ 8,598,634 $ -- $ -- $(8,074,567) $ 532,417
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (589,155) $ (479,803)
----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 232,965 164,080
Expenses for consulting services paid for in stock 96,000 -
Net loss on dispositions of assets 4,279 -
(Increase) decrease in-
Accrued interest receivable 7,608 (10,866)
Other assets (2,661) (6,654)
Increase (decrease) in-
Accrued interest payable 33,710 (1,543)
Due to mortgage banking companies (69,663) (15,054)
Due to creditors - -
Accounts payable trade and accrued expenses 93,013 96,921
----------- -----------
Total adjustments 395,251 226,884
----------- -----------
Net cash used in operating activities (193,904) (252,919)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in mortgage warehouse loans receivable 1,604,828 (2,579,116)
Proceeds from sale of fixed assets - -
Purchase of fixed assets (9,850) (4,805)
----------- -----------
Net cash provided by (used in) investing activities 1,594,978 (2,583,921)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in borrowings used in operations, net
of issuance costs (1,471,683) 2,680,185
Payment of dividends on preferred stock (4,954) -
Increase in deferred costs of equity offering (245,690) (182,570)
Proceeds from stock transactions 653,170 -
----------- ----------
Net cash provided by (used in) financing activities (1,069,157) 2,497,615
----------- -----------
Net increase (decrease) in cash and temporary
cash investments 331,917 (339,225)
CASH AND TEMPORARY CASH INVESTMENTS, beginning of year 105,657 437,574
----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS, end of year $ 437,574 $ 98,349
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 29,119 $ 65,620
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996
1. ORGANIZATION AND MERGER, PIONEER'S
REORGANIZATION AND OPERATIONS
Organization and Merger
PCF Acquisition Corp. ("PCF") was organized and commenced operations on March 8,
1994. The initial 185,511 shares of PCF's common stock were issued at a price of
$.81 per share on March 9, 1994 to the two founding stockholders. Such shares
were paid for on July 1, 1994. PCF was organized for the express purpose of
raising capital through an initial public offering ("IPO") for the benefit of
Pioneer Commercial Funding Corp. ("Pioneer"), a mortgage warehouse lender that
emerged from Chapter 11 Bankruptcy on April 2, 1993. Pioneer is related to PCF
through common interests. On November 23, 1994, in contemplation of the IPO and
in accordance with a resolution ratified by the Board of Directors of PCF and
Pioneer, Pioneer merged with and into PCF in a one-for-one exchange of all of
the outstanding shares of the Class A and Class B common stock and the Class A
preferred stock of Pioneer for common shares of PCF. Immediately subsequent to
the merger, PCF changed its name to Pioneer Commercial Funding Corp. (hereafter
referred to as the "Company"). The merger has been accounted for as an exchange
between companies under common control and the assets and liabilities of the
merged entity are recorded at their historical cost. All amounts presented have
been restated to give effect to the merger as if it had occurred on the first
day of each period presented.
Pioneer's Reorganization
On April 2, 1993 (the "Effective Date"), Pioneer emerged from Chapter 11
("Chapter 11") of the United States Bankruptcy Code (the "Bankruptcy Code")
pursuant to a confirmed First Amended Modified Plan of Reorganization ("POR").
These financial statements have been prepared starting on the day after
Pioneer's emergence from bankruptcy.
The POR confirmed by the Bankruptcy Court provided for the following:
- Substantially all of Pioneer's assets (which were primarily loans and
accrued interest receivable) were remitted to the secured creditors in
settlement of Pioneer's outstanding obligations.
- All other recoverable assets have been placed in a distribution fund.
Liquidation of these assets are first to be used to pay administrative
expense obligations (estimated to be
F-6
<PAGE>
<PAGE>
approximately $1.9 million) with any residual funds to be distributed to
the unsecured creditors on a pro rata basis.
- As further discussed in Note 12, unsecured creditors also received
noninterest-bearing notes totaling $1,350,000 which are to be paid only
upon Pioneer attaining certain pre-defined income levels in future
periods.
- Subsequent to the confirmation date, Pioneer paid the unsecured creditors
$252,000 ($102,000 from cash on hand as of the confirmation date and
$150,000 from proceeds of Pioneer's issuance of preferred stock
subsequent to the confirmation date). Such payment was distributed to the
unsecured creditors on a pro rata basis.
- Pioneer received $131,000 from the creditors' trust fund after the
confirmation for working capital purposes.
- After the confirmation date, Pioneer was reimbursed $50,000 from a
certain law firm which provided services to Pioneer during the
reorganization period. Such amount will be repaid to the law firm only
after the $1,350,000 notes to the unsecured creditors discussed above are
paid in full.
As discussed above, Pioneer remitted its loans and other receivables to the
secured and unsecured creditors in satisfaction of its debt obligations.
Collection and recovery of these outstanding receivables were the responsibility
of the creditors committee, therefore, Pioneer is unable to determine the
overall recovery by the secured and unsecured creditors groups of their claims
against Pioneer. Claims for administrative expenses have been fully recovered by
the creditors.
Operations
The Company is engaged in the business of mortgage warehouse lending which
primarily consists of providing lines of credit, in the form of "warehouse
financing," to mortgage banking companies to enable them to close real estate
loans on single family, owner-occupied dwellings and sell such loans to
investors in the secondary market. The Company obtains its funds to provide such
financing from third-party funding sources with which it has available lines of
credit. The Company's loans receivable from the mortgage banking company are
secured by an interest in the underlying real property which are then assigned
to the Company's funding sources. Investor groups who purchase the mortgages
(which generally occurs within two weeks from the time the Company makes the
loan) remit the proceeds directly to the Company in satisfaction of the loan and
interest receivable from the mortgage banking company. The Company will
simultaneously use the funds to pay off its loan and accrued interest payable to
its funding sources. The Company's primary sources of income from operations are
processing fees received from the mortgage banking company for each loan
financed and the interest rate spread (usually 0.5%) between the rate at which
the Company borrows from its funding source and the rate it charges the mortgage
banking company.
The Company's operations are subject to certain risks which are inherent to its
industry. Its results of operations depend heavily upon the ability of its
mortgage banking customers to originate mortgage loans. This ability is largely
dependent upon general economic conditions in the geographic areas that the
Company serves. Because these general economic conditions fluctuate, there can
be no assurance that prevailing economic conditions will always favor the
Company's business and operations. In addition, mortgage banking firms have
historically experienced a wide range of financial results, from highly
profitable to highly unprofitable. These financial
F-7
<PAGE>
<PAGE>
results are due to many factors which affect most, if not all, firms in the
mortgage banking business at about the same time. Three of these factors which
predominate are: changes in mortgage interest rates, the availability of
affordable credit, and the state of the domestic economy. These three factors,
among others, affect the demand for new and used housing and thus the demand for
financing and refinancing of mortgages. Lastly, although the Company's mortgage
banking customers must have a commitment for each loan from an approved
third-party agency ("Agency") before the Company will extend mortgage warehouse
financing, there is no guarantee that the Agency will, in fact, accept the
mortgage loan when delivered due to certain deficiencies in the loan or other
unanticipated circumstances which may exist. If for any reason an Agency does
not accept the mortgage loan, and the Company's mortgage banking customer is
unable to pay back its obligation to the Company through other means, the
Company could find itself the owner of a long-term loan of less than market
value instead of short-term bridge financing receivable.
As of June 14, 1993, when the Company began its first active operations since
its emergence from Chapter 11, the Company had an available line of credit of
$1.0 million from one source which was subsequently increased to available lines
of credit from two funding sources in the total amount of $2.35 million as of
March 31, 1995 and $4.1 million as of May 1996. Substantially all of the
business conducted by the Company during the period from April 3, 1993 to March
31, 1994 and for the year ended March 31, 1995 was with one active mortgage
banking company who had a credit line approved by the Company in the amount of
$2.0 million. In April, 1995, the Company discontinued the credit line with this
customer as a result of the customer not complying with all of the terms of the
credit line agreement. The Company had substantially no mortgage lending
activities from April 1995 through August 1995. During the period from August
1995 through November 1995, the Company developed customer relationships with
three new mortgage banking companies. For the period from August 1, 1995 through
May 30, 1996, the Company generated approximately $31.6 million in mortgage
warehouse lending volume from these three new customers. The Company is in the
process of evaluating the creditworthiness of several other potential customers.
Although the Company expects to conduct business in the future with a greater
number of mortgage banking customers, and thereby reduce the risks attendant in
relying upon a small number of sources to support its business, no assurance can
be given that it will receive applications from potential customers who will be
able to satisfy its standards, or if it does receive such applications, that
such applicants will thereafter engage in the volume of mortgage warehouse
lending transactions that are required to sustain the Company's operations. The
cessation of business of any of the Company's active customers or the inability
of its customers to provide the Company with an increased level of loan volume
could materially adversely affect the Company's ability to generate sufficient
revenues to operate profitably and to continue to meet its cash obligations in
future periods.
During the period from April 3, 1993 to March 31, 1994 and the years ended March
31, 1995 and 1996, the Company incurred net losses of $399,000, $589,000 and
$480,000, respectively. Such losses were partly attributable to noncash expenses
(primarily depreciation, amortization, debt discount expenses and deferred
consulting agreement expenses) totaling $130,000, $329,000 and $164,000 during
1994, 1995 and 1996, respectively, and the inability of the Company to generate
a sufficient volume of loan transactions with its customers. These matters have
resulted in the deterioration of the Company's financial condition and raise
substantial doubt about its ability to continue as a going concern. These
financial statements have been prepared assuming the Company will continue as a
going concern and do not include any adjustments that may result from the
outcome of this uncertainty. In order for the Company to strengthen its
financial condition and to operate profitably in future periods, it will need to
continue to increase its capacity to fund loan transactions and correspondingly
increase loan originations. Such increases
F-8
<PAGE>
<PAGE>
are dependent upon the Company's ability to (1) increase funds available from
financing sources, and (2) develop new customer relationships with mortgage
banking companies which will supply the Company with a sufficient volume of loan
transactions. As discussed above, the Company is actively pursuing new
relationships with mortgage banking companies and believes that they will be
able to significantly increase loan volume demand in future periods. The
Company's ability to attract and retain new funding sources or to increase
available financing from its existing sources is contingent upon the Company's
ability to raise additional capital.
The Company is currently exploring several opportunities to raise additional
capital including its current intent to issue common stock in an IPO
transaction. Management anticipates that the terms of the IPO shall consist of
an offer to sell, in tandem, 690,000 shares of common stock of the Company and
690,000 common stock purchase warrants (of which the underwriter has the option
to purchase up to 90,000 of such shares of common stock and warrants in the
event of an over-allotment) at a per unit price of $5.00 and $0.10,
respectively, and 40,000 shares of the existing issued and outstanding common
stock of the Company (currently owned by the bridge financers as discussed in
Note 5) at a price per share of $5.00 (proceeds from the sale of these shares
will not revert back to the Company). The warrants will give the owner the right
to purchase an additional share of common stock at a price of $5.50 for a period
of four years commencing one year after the completion of the IPO (the "Exercise
Period"). Such warrants will be immediately tradable separate from the common
stock. Commencing two years after the completion of the IPO and through the end
of the exercise period, the warrants may be redeemed by the Company upon 30
days' written notice at a price of $.05 per warrant, provided that (1) the
closing sale price of the Company's common stock shall not be less than $7.50
per share for any period 20 days subsequent to the issuance of the written
notice, or (2) that the warrant holders have not exercised their warrants at any
time prior to the period 30 days after the issuance of the written notice. In
addition, the underwriter will be issued the right for a period of four years
commencing one year after the completion of the IPO to purchase, in tandem,
60,000 shares of common stock of the Company and 60,000 common stock purchase
warrants at a price of $6.12 for each combined share and warrant. The terms of
the warrants acquired by the managing underwriter would be the same as those
discussed above except that such options are nontransferable.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Use of Estimates
The accompanying financial statements, which are prepared in conformity with
generally accepted accounting principles, require the use of estimates made by
management. The most significant estimates with regard to these financial
statements relate to the valuation allowance for deferred income taxes and the
estimated obligations due under the plan of reorganization, as more fully
described in Notes 6 and 12. Actual results may differ from those assumed in
management's estimates.
Cash and Temporary Cash Investments
Temporary cash investments include all liquid interest-bearing investments with
original maturities of three months or less.
Effective April 25, 1996, a certificate of deposit in the amount of $25,000 was
pledged in order for the Company to receive the right to conduct business in the
State of California.
F-9
<PAGE>
<PAGE>
Fixed Assets
Depreciation expense is computed generally on a straight-line basis. Leasehold
improvements are amortized over the life of the asset or the term of the lease,
whichever is shorter. The ranges of estimated useful lives used in computing
depreciation and amortization are as follows:
<TABLE>
<CAPTION>
Years
------
<S> <C>
Furniture and equipment 3 to 10
Autos and trucks 5
Leasehold improvements 3 to 10
Proprietary computer software 5
</TABLE>
Proprietary computer software consists of a set of computer programs that were
developed internally by the Company for use in its business and are not for
resale to other mortgage finance companies.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS
No. 109, deferred income taxes are provided for at the statutory rates on the
difference between financial statement basis and tax basis of assets and
liabilities and are classified in the balance sheets as current or noncurrent
consistent with the assets and liabilities which give rise to such deferred
income taxes.
Deferred Costs of Equity Offering
and Debt Issuance
Certain costs associated with the IPO have been paid by the Company and are
deferred on the balance sheets. Upon the successful completion of the IPO, these
costs will be shown as a direct reduction to additional paid-in capital.
However, should the IPO not be consummated, such deferred costs will be
immediately written off by the Company in its statements of operations. In
addition, costs incurred in connection with the issuance of debt have been
deferred and are being amortized over the term of the debt instrument.
Loss Per Share of Common Stock
The loss per share of common stock was computed using the net loss for the year,
divided by the weighted average number of shares outstanding during such year
(adjusted for the reverse stock split effective in August 1994 and June 1996).
Weighted average shares outstanding are further adjusted for the impact of
shares issued and options granted for which the share price/option exercise
price is less than the anticipated IPO per share offering price of $5.00.
Prospective Changes in Accounting Policies
The following new financial accounting standards must be adopted by the Company
effective April 1, 1996:
- SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets to be Disposed of," requires that, if certain
changes in events or circumstances occur which indicate that the
carrying amount of a long-lived asset may not be recoverable, a company
must evaluate whether the asset is impaired, as defined. If an asset is
considered
F-10
<PAGE>
<PAGE>
to be impaired, a valuation allowance must be established
equal to the difference between the carrying value of the asset and the
estimated discounted value of the asset based on certain realization
assumptions.
- SFAS No. 123, "Accounting for Stock-Based Compensation," establishes
financial accounting and reporting standards for stock-based employee
compensation plans and will allow companies to choose either (1) a fair
value method of valuing stock-based compensation plans which will affect
reported net income, or (2) to continue following the existing
accounting rules for stock option accounting but disclose what the
impact would have been had the new standard been adopted. The Company
will choose the disclosure option of this standard which would require
disclosing the pro forma net income and earnings per share amounts
assuming the fair value method was adopted on April 1, 1995.
Management believes that the adoption of these new accounting standards on April
1, 1996 will not have a material impact on the Company's financial condition or
results of operations.
3. MORTGAGE WAREHOUSE
LOANS RECEIVABLE/PAYABLE
Loans receivable are generally due within thirty to forty-five days from the
date funded, with an average outstanding period of twelve days and interest
payable at prime plus 1.5%. Similarly, all of the loans payable are due within
the same time frame with interest payable at prime plus 1%. The Company's line
of credit with its loan payable funding source is limited to $4.1 million (as a
result of an increase from $2.0 million in February 1996) and matures on August
31, 1996. In consideration for this increase, the Company paid a financing fee
of $7,900 and has agreed to issue to the funding source upon the closing of the
IPO, a five year option to purchase up to 41,271 shares of the Company's common
stock at an exercise price of $5.50 per share. These options vest at a rate of
10,318 shares per year on the first through fourth anniversaries of the IPO
closing date. If the credit line is terminated, any unexercised warrants will
immediately expire. For the years ended March 31, 1995 and 1996, the weighted
average interest rate on loans receivable was 8.84% and 9.93%, respectively, and
on loans payable was 7.01% and 9.53%, respectively. Loans receivable are
collateralized by a security interest in the underlying real property which the
Company then assigns to its funding sources as security for the loans payable.
The Company is required to comply with certain operating covenants in accordance
with the debt agreement with its funding source. As of March 31, 1996, the
Company was in compliance with these covenants.
4. REVOLVING LINES OF CREDIT
As of March 31, 1995, the Company had a Revolving Line of Credit ("LOC") from a
related party in the amount of $350,000. Such LOC had a maturity date of
November 15, 1995 and was not renewed when it matured. As of March 31, 1995 and
through November 15, 1995, no amounts were outstanding under this LOC.
In November 1995, the Company entered into revolving credit agreements with
certain officers, directors and former officers of the Company to borrow an
aggregate of $113,000 at an interest rate of prime plus 1/4 percent. These
agreements mature in December 1996. As of March 31, 1996, $79,400 was
outstanding under these LOCs.
F-11
<PAGE>
<PAGE>
Borrowings on all of the LOCs described above are secured by an assignment of
the general security interest in the mortgage notes underlying the mortgage
warehouse loans receivable.
5. BRIDGE FINANCING
In March 1994, the Company entered into a loan arrangement with various
individuals (original bridge financers) to provide $200,000 in additional funds
to be used in the ordinary course of the Company's warehouse lending operations
and to defray certain expenses of the anticipated IPO. The loans bore interest
at a rate of 12% and were due at the earlier of the successful completion of the
IPO or August 31, 1995. As an inducement to make these loans, the Company issued
22,727 shares of its common stock to the original bridge financers. The original
22,727 shares issued and the additional 7,273 shares issued discussed below were
assigned a $5.00 per share value (which is equal to the price that these shares
will be offered at in the IPO) resulting in a $150,000 discount to the debt.
Such discount was being amortized to interest expense over the term of the debt
agreements resulting in an effective interest rate of 248%.
On August 31, 1995, the bridge loans matured but were not paid by the Company.
On January 16, 1996, the Company paid off in full loans outstanding to two of
the bridge financers with an aggregate unpaid balance as of such date totaling
$122,492 (which includes $22,492 of unpaid accrued interest). On February 1,
1996, the Company entered into agreements with the remaining two bridge
financers (the remaining bridge financers) with aggregate outstanding loans to
the Company as of such date totaling $123,708 (which includes $23,708 of unpaid
accrued interest), whereby the maturity date of the bridge loan obligations was
extended to the earlier of three days following the consummation of the IPO or
December 31, 1996. The Company received waivers from all of the original bridge
financers for any defaults which may have occurred as a result of the Company's
failure to pay off its debt obligations on their original maturity date of
August 31, 1995. In consideration for the waivers received and in order to
adjust the number of shares given to the original bridge financers for the
impact of the June reverse stock split which reduced their number of shares
owned from 30,000 to 22,727 shares, the Company issued to the original bridge
financers an additional 7,273 shares of common stock in June 1996. In addition,
the Company issued 10,000 more post-split shares to the remaining bridge
financers in consideration for extending the maturity on their debt in February
1996. A value of $5.00 per share was assigned to these shares on the date of the
debt modification resulting in a $50,000 discount to the debt. Such discount is
being amortized to interest expense over the remaining term of the modified debt
agreements resulting in an effective interest rate of 133% for the period from
February 1, 1996 through December 31, 1996.
6. INCOME TAXES
For the years ended March 31, 1995 and 1996, the Company provided $1,449 and
$1,188, respectively, for income taxes which represents provisions for minimum
state taxes. The 1995 and 1996 federal tax benefit of $219,000 and $191,000,
respectively, attributable to the Company's loss before taxes was offset by a
corresponding provision to increase the Company's deferred tax asset valuation
allowance. As of March 31, 1996, the Company's federal deferred tax attributes
consisted primarily of net operating loss carryforwards ("NOL") in the
approximate amount of $2.0 million. Approximately $1.3 million of the NOL is
limited to use (approximately $100,000 per year) due to a change in ownership in
November 1994 resulting from the merger between Pioneer and PCF. The deferred
tax asset for the NOL is reduced by a corresponding valuation allowance for the
same tax effected amount. Utilization of the NOL, which expire in varying
amounts between 2000 and 2011, is dependent upon the Company's ability to
generate taxable income in the future.
F-12
<PAGE>
<PAGE>
7. DUE TO MORTGAGE
BANKING COMPANIES
The Company generally will only finance up to 98% of the total loan amount
closed by the mortgage banking company. Upon sale of the loan to the investor
group, proceeds for 100% of the loan amount are remitted to the Company by the
investor. The Company applies such funds against amounts due from the mortgage
banking company for principal and accrued interest on the 98% financed and will
then remit the excess funds back to the mortgage banking company.
8. FIXED ASSETS
During the year ended March 31, 1995, the Company abandoned its rented office
located in New York and correspondingly wrote off the unamortized balance of the
related leasehold improvements totaling $4,279.
9. DEFERRED LEGAL FEES
Deferred legal fees are a consequence of the POR and are payable in four annual
installments beginning on April 16, 1994. The Company has not paid the April
1995 installment of $28,990 and as of March 31, 1996, the following payments
remain:
<TABLE>
<S> <C>
April 1995 and 1996 $ 57,988
April 1997 20,728
--------
Total payments 78,708
Less - Discount factor (1,965)
---------
Net book value - March 31, 1996 $ 76,743
========
</TABLE>
10. STOCKHOLDERS' EQUITY
Reverse Stock Splits and Merger
Effective in August 1994, the Board of Directors of Pioneer authorized a .31 for
1 reverse stock split for its Class A and Class B common stock and its Class A
preferred stock. In connection with the merger of Pioneer with and into PCF in
November 1994, all of the common and preferred shares of Pioneer outstanding as
of the date of the merger (240,922 Class A common shares, 252,508 Class B common
shares and 123,332 Class A preferred shares -- all after giving effect of the
June 1996 reverse stock split described below) were exchanged on a one-for-one
basis for common shares of PCF. Effective June 1996, the Board of Directors of
the Company authorized a .758 for 1 reverse stock split of all of its then
outstanding common stock. All share and per share amounts in these financial
statements have been restated to give effect to the reverse stock splits and
merger as if they had occurred on the first day of each period presented.
Share Voting Agreements
On October 25, 1994, in connection with a stock purchase agreement with an
unrelated third party, Pioneer issued an additional 176,136 shares of its Class
B common stock for $500,000 (which were exchanged for 176,136 common shares of
PCF upon the consummation of the merger). The agreement gives the third party
the right to acquire additional shares, if, in future periods, additional shares
are issued to other parties so that this third party's percentage ownership in
the Company does not fall below 20% of the total outstanding common shares. In
connection with
F-13
<PAGE>
<PAGE>
this stock purchase transaction, the unrelated third party entered into a
share voting agreement with certain existing shareholders of the Company, who
after the merger, own greater than 50 percent of the Company in the aggregate.
The share voting agreement requires that all parties to the agreement will vote
on all matters subject to shareholder approval in a consistent fashion. The
agreement is in effect until the successful completion of the stock offering
discussed in Note 1.
Dividend Restriction
The holders of the Company's common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. The
common stockholders are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
However, it is not presently anticipated that dividends will be paid on common
stock in the foreseeable future as certain of the debt instruments to which the
Company is a party prohibit or restrict the payment of dividends (see Note 12
for further discussion).
Preferred Stock
Prior to the merger between PCF and Pioneer, Pioneer had issued for $525,000,
123,332 shares of its Class A preferred shares with a 5% cumulative dividend
(including the 45,033 shares converted from outstanding LOC borrowings during
1995). Parties related to executive officers of Pioneer owned 25,297 of such
outstanding Class A preferred shares. All outstanding preferred shares were
exchanged on a one-for-one basis for common shares of PCF on November 23, 1994
in connection with the merger between PCF and Pioneer. Through November 23,
1994, Pioneer accrued for the 5% dividend payment totaling $15,077, of which
$4,954 has been paid. The remaining unpaid balance totaling $10,123 was forgiven
by the preferred shareholders and the accrual was reversed by the Company.
11. STOCK OPTION PLAN
The Company has adopted a Non-Qualified Stock Option Plan (the "Plan") which
provides for the issuance of options to purchase up to 151,515 shares of the
Company's common stock to persons who are at the time of grant, employees of, or
consultants to, the Company.
The Plan further provides for the automatic issuance of options to nonemployee
directors of the Company. Each nonemployee director shall be granted options to
acquire 15,000 shares of the Company's common stock on January 2, 1997, January
2, 2000 and January 2, 2003 (45,000 to each in total). Each grant shall vest at
a rate of 3,788 shares per year of service and will expire 10 years from the
date of grant to the extent not exercised.
Upon completion of the merger between the Company and Pioneer, three directors
of Pioneer became the first nonemployee directors of the Company. In accordance
with the Initial Options provision, the directors received options to purchase
24,306 shares of common stock in the aggregate at an exercise price of $5.00 per
share. Such options vest at the rate of 316 shares per month, provided, however,
that none of these options shall be exercisable prior to March 1995.
On March 1, 1995, two of the nonemployee directors were named President and
Chief Executive Officer of the Company, respectively. As a result, the Initial
Options granted to these individuals totaling 16,414 were forfeited. In
addition, in June 1995, these two individuals were each granted additional
options to purchase 75,758 shares of the common stock at an exercise price of
$5.00 per share. These options (which were not granted pursuant to the Plan) are
immediately exercisable and expire 5 years from the date of grant.
F-14
<PAGE>
<PAGE>
The exercise price for all options issued/issuable under the Plan must be 100%
of the fair market value of the Common Stock underlying the option at the time
of grant.
12. COMMITMENTS AND CONTINGENCIES
Plan of Reorganization
Under the POR, the Company is contingently liable to its pre-Chapter 11
unsecured creditors, for such creditors' pro rata shares of noninterest-bearing
notes (the "Notes") totaling $1,350,000. The payment terms are as follows:
(i) Commencing as of the close of fiscal year 1995 (ending March 31,
1995) each Note holder shall receive a cash distribution in an
amount equal to such holder's pro rata share of twenty percent of
the Net Income Available for Note Payments, as defined, if Net
Income, also as defined, for such fiscal year exceeds $400,000;
(ii) Commencing with the close of fiscal year 1996, (ending March 31,
1996), and for all succeeding years thereafter, until full aggregate
payment of $1,350,000 is made under the Notes, each Note holder
shall receive a cash distribution equal to such Creditors' pro-rata
share of twenty percent of the Net Income Available for Note
Payments, if the Net Income for any such year exceeds $1,300,000.
In addition, approximately $50,000 in professional fees incurred in connection
with the POR were deferred and will only be paid to the extent the Notes are
paid in full.
In accordance with the POR, certain operating restrictions have been placed upon
the Company until the time that all amounts due on the Notes have been paid in
full. These restrictions include:
- Incurring new debt in excess of $25,000, except for secured lending
required in the ordinary course of the Company's mortgage lending
operations.
- Expending more than $25,000 in the aggregate in a calendar year to
purchase or lease capital assets, except to replace existing assets.
- Merging or consolidating with another business.
- Expending more than $320,000 annually in the aggregate to the officers of
the Company and placing limitations on salary increases.
- Declaring dividends on any class of common stock, except that, if there
should be a public offering of the securities of the Company, and, if at
the option of the Company, fifty percent of the proceeds in excess of
$5,000,000 from such offering are utilized for the payment of the Notes,
then such dividend restriction shall be deemed waived.
As of March 31, 1996, the Company was unable to determine whether it is probable
that it will generate income in future years which would result in payments on
the Notes. As such, no liability has been reflected in the Company's balance
sheet for the Notes or the professional fees.
F-15
<PAGE>
<PAGE>
Consulting Contract
On February 15, 1994, the Company entered into a contract with an independent
consultant to provide assistance to the Company with respect to the anticipation
of a public offering of its stock (the Proposed Offering). Services to be
provided include determining an appropriate structure for its Proposed Offering,
to evaluate potential underwriters of such Proposed Offering, to assist in
negotiating the terms of an agreement for an underwriter acceptable to the
Company and to provide guidance to the Company's management with respect to the
process that the Company must undertake in connection with the registration and
public sale of its stock. The contract terminates on January 31, 1995.
In consideration for these services, the Company issued to the independent
consultant 55,682 shares of its Class B Common Stock. The value for these shares
for financial reporting purposes was estimated to be $3.30 per share which
management believes approximates the fair value per share for an unregistered
share of common stock of the Company. It is anticipated that the shares issued
to the independent consultant would not be registered in the proposed IPO. The
Company is amortizing the expense on a straight-line basis over the term of the
contract resulting in an expense of $23,000 and $96,000 in 1994 and 1995,
respectively. The unamortized portion of the contract is reflected as a
reduction to shareholders' equity.
Effective September 30, 1994, as a result of a position taken by the National
Association of Securities Dealers, Inc. that the value of the shares issued to
the independent consultant must be considered as underwriters compensation
(which would limit the amount of compensation allowed to be paid to the
Underwriter in connection with the Company's anticipated equity offering), the
Company and the independent consultant terminated their contract and the
consultant returned all 55,682 shares of common stock back to the Company which
were immediately canceled. The independent contractor further waived any and all
entitlements and claims for payment for services rendered during the contract
period through September 30, 1994. The unamortized portion of the consulting
contract as of September 30, 1994 totaling $64,750 was reversed against
additional paid-in capital and common stock.
Employment Contracts
On March 1, 1995, the Company entered into a two-year employment agreement with
its Chief Financial Officer ("CFO") which provides for a base annual salary of
$90,000 and $100,000 for the fiscal years ending March 31, 1996 and 1997,
respectively. In addition, the Company must reimburse the CFO certain
business-related expenses, provide for the use of a Company automobile and pay
the premiums for life and long-term disability insurance. In the event of
termination in connection with a change in control, the CFO is entitled to the
balance of the amount due under this agreement plus an additional $100,000.
The agreement also provides for the granting to the CFO an option to purchase
75,758 shares of the Company's common stock at an exercise price of $5.00 per
share and a second grant on May 1, 1996 to purchase an additional 37,879 shares
at the market price of the common stock estimated at that date to be $5.00 per
share. Both options are immediately exercisable and expire five years from the
date of grant.
In June 1995, the Company entered into employment contracts with the chief
executive officer and president providing for an annual salary of $55,000 for
each individual commencing after the completion of the IPO. For the period from
June 1995 through the completing of the IPO these
F-16
<PAGE>
<PAGE>
officers were not entitled to any salary compensation. See Note 11 for a
discussion of stock options awarded to these officers in June 1995.
13. OPERATING EXPENSES
Operating expenses consisted of the following for the years ended March 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Salaries and benefits $ 159,427 $ 134,555
Depreciation and amortization 110,498 101,300
Professional fees (includes amortization of
consulting contract totaling $96,000 and
$0 in 1995 and 1996, respectively) 167,010 114,382
Utilities 22,352 19,782
Rent 23,803 11,609
Repairs and maintenance 3,383 4,616
Other 57,989 47,465
---------- ----------
$ 544,462 $ 433,709
========== ==========
</TABLE>
14. RELATED PARTY TRANSACTIONS
Transactions with related parties (which consist of executive officers and
shareholders of the Company and their related interests and family members) not
disclosed elsewhere in these financial statements consist of the following:
- On July 1, 1994, the Company paid in full $150,000 outstanding under
two of the LOC Agreements to two related parties. Such related parties
simultaneously satisfied their stock subscription obligation for shares
of the Company's common stock in the amount of $150,000.
- During September 1994, short-term advances were made by several related
parties to the Company which were used in the Company's mortgage
warehouse operations. As of September 30, 1994, approximately $391,000
of such advances were outstanding bearing interest at amounts ranging
from the prime rate of interest to 10%. These advances plus the related
accrued interest were paid in full on October 11, 1994.
- For the years ended March 31, 1995 and 1996, certain family members of
an executive officer of the Company were engaged to perform accounting
and consulting services for the Company. Such individuals were
compensated approximately $14,291 and $3,106 for these services in 1995
and 1996, respectively.
15. EVENTS OCCURRING SUBSEQUENT TO THE DATE OF THE AUDITOR'S REPORT (UNAUDITED)
Consummation of IPO
On August 16, 1996, the Company consummated its IPO as further described in Note
1 above. The transaction resulted in the issuance of approximately 690,000
common shares and net proceeds to the Company of approximately $2.7 million.
F-17
<PAGE>
<PAGE>
Proposed Equity Offering
The Company is currently contemplating raising additional funds through the
registration and sale of new shares of its common stock. The Company anticipates
that it will issue a certain number of shares of its common stock
along with detachable warrants in order to raise gross proceeds of approximately
$7.5 million before consideration of the underwriter's discount and other
offering expenses. The per share offering price for the common stock and
warrants will be determined based upon the current market price of the Company's
common stock on the transaction date. The Company's common stock was trading at
approximately $1.63 per share on December 20, 1996. The warrants will be
exercisable immediately after the consummation of the proposed equity offering
for a period of five years. The warrants are also subject to the redemption by
the Company for a four year period commencing on the first anniversary date of
the consummation of the offering for a price of $.10 per warrant, provided
certain conditions exist.
F-18
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 March 31
1996 1996
(unaudited)
------------- --------
ASSETS
<S> <C> <C>
Cash and temporary cash investments $586,707 $98,349
Loans receivable, mortgage warehouse lending 3,086,542 3,512,775
Accrued interest and fees receivable 24,204 30,007
Deferred cost of equity offering -- 445,731
Fixed Assets
Furniture and equipment 54,910 50,370
Proprietary computer software 472,865 469,655
------------ ------------
527,775 520,025
Less accumulated depreciation and amortization 352,686 302,035
------------ ------------
Net Fixed Assets 175,089 217,990
------------ ------------
Other assets 197,558 26,087
------------ ------------
Total Assets $4,070,100 $4,330,939
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loans payable, mortgage warehouse $1,581,605 $3,254,235
Revolving lines, of credit -- 79,400
Bridge financing (notes totaling $100,000 less
unamortized discount of $37,500) -- 62,500
Accrued interest payable 5,893 43,564
Due to mortgage banking companies 36,103 20,917
Accounts payable and accrued expenses 115,192 261,163
Deferred legal fees 74,793 76,743
------------ ------------
Total Liabilities 1,813,586 3,798,522
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Common stock-$.01 par value; authorized 5,000,000 shares;
1,442,272 and 835,000 shares issued and outstanding
at September 30 and March 31, 1996, respectively 14,423 8,350
Additional paid-in capital 10,563,027 8,598,634
Accumulated deficit (8,320,936) (8,074,567)
------------ ------------
Total shareholders' equity 2,256,514 532,417
------------ ------------
Total liabilities and shareholders' equity $4,070,100 $4,330,939
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-19
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH & SIX MONTH PERIODS ENDED SEPTEMBER 30, 1996 & 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
---------------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME
Interest income $42,713 $1,966 $103,280 $6,452
Commissions and fees 1,500 3,000 1,500 3,000
Processing fees 12,275 1,940 24,943 1,940
Total income 56,488 6,906 129,723 11,392
DIRECT COSTS
Interest expense - warehouse and
revolving lines of credit 42,282 5,975 108,682 6,205
Interest expense - bridge financing 25,355 21,920 42,385 57,568
Bank charges and fees 2,289 1,693 5,905 2,846
Bank processing fees 3,300 -- 6,300 --
Total direct costs 73,226 29,588 163,272 66,619
LOSS BEFORE OPERATING EXPENSES (16,738) (22,682) (33,549) (55,227)
OPERATING EXPENSES 121,913 93,639 218,379 193,870
Loss from operations (138,651) (116,321) (251,928) (249,097)
OTHER INCOME (EXPENSE)
Interest income - other 9,037 16,796 9,307 23,590
Interest expense - other (1,178) (1,178) (2,356) (2,356)
Total other income (expense) 7,859 15,618 6,951 21,234
LOSS BEFORE INCOME TAXES (130,792) (100,703) (244,977) (227,863)
PROVISION FOR INCOME TAXES -- -- 1,392 1,180
Net loss ($130,792) ($100,703) ($246,369) ($229,043)
LOSS PER SHARE OF COMMON
STOCK ($0.11) ($0.12) ($0.25) ($0.28)
WEIGHTED AVERAGE NUMBER OF
SHARES 1,155,315 825,000 996,629 825,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Additional Accumulated Total
Stock Paid-in Deficit Stockholders'
Capital Equity
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balances
March 31,1996 $8,350 $8,598,634 ($8,074,567) $532,417
Issuance of 7,272 common
shares in connection with
bridge financing 73 (73) -- --
Issuance of 600,000 shares of
common stock and warrants 6,000 1,964,466 -- 1,970,466
Net loss for the period -- -- (246,369) (246,369)
------- ------------ ----------- ------------
$14,423 $10,563,027 ($8,320,936) $2,256,514
</TABLE>
The accompanying notes are an integral part of this statement.
F-21
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss ($246,369) ($229,043)
----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 110,936 98,267
(Increase) decrease in
Accrued interest receivable 5,803 10,360
Other assets (191,900) (20,758)
Increase (decrease) in
Accrued interest payable (37,671) (7,792)
Due to mortgage banking companies 15,186 (34,834)
Accounts payable and Accrued expenses (150,277) 26,258
Total adjustments (247,923) 71,501
Net cash used in operating activities (494,292) (157,542)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in Mortgage Warehouse Loans Receivable 426,233 509,642
Purchase of Fixed Assets (7,750) (350)
Net cash provided by investing activities 418,483 509,292
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in borrowings used in operations,
net of issuance costs (1,672,630) (545,930)
Decrease in revolving line of credit and bridge financing (179,400)
(Increase) decrease in deferred costs of equity offering 445,731 (81,585)
Proceeds from issuance of stock 1,970,466
Net cash provided by (used in) financing activities 564,167 (627,515)
Net increase (decrease) in cash 488,358 (275,765)
CASH AND TEMPORARY CASH INVESTMENTS
APRIL 1,1996 and 1995 98,349 437,574
CASH AND TEMPORARY CASH INVESTMENTS
SEPTEMBER 30,1996 and 1995 $586,707 $161,809
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $130,468 $2,872
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (Unaudited)
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited financial statements
for Pioneer Commercial Funding Corp. (the "Company") contain all adjustments of
a recurring nature considered necessary for a fair presentation of its financial
position as of September 30, 1996, the results of operations for the three and
six month periods ended September 30, 1996 and 1995 and its cash flows for the
six months ended September 30, 1996 and 1995. The results of operations for the
six month and three month periods ended September 30, 1996 and 1995 are not
necessarily indicative of the Company's results of operations to be expected for
the entire year.
The accompanying unaudited interim financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes required to be in conformity with generally
accepted accounting principles. The financial information provided herein,
including the information under the heading, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," is written with the
presumption that the users of the interim financial statements have read, or
have access to, the Company's March 31, 1996 audited financial statements and
notes thereto, together with the Managements Discussion and Analysis of
Financial Condition and Results of Operations as of March 31, 1996 and for the
year then ended included in the Company's definitive prospectus dated August 12,
1996.
F-23
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1996 (Unaudited)
2. OPERATING EXPENSES
Operating expenses consisted of the following:
<TABLE>
<CAPTION>
Three Month Period Ended Six Month Period Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries and benefits $33,488 $29,759 $52,821 $66,859
Depreciation and amortization 25,325 25,325 50,650 50,650
Professional fees 13,140 12,703 26,196 25,203
Utilities 5,599 4,555 11,144 8,853
Temporary staff services 13,165 9,785 23,849 15,776
Rent 2,903 2,903 5,805 5,805
Other 28,293 8,609 47,914 20,724
-------- ------- -------- --------
$121,913 $93,639 $218,379 $193,870
======== ======= ======== ========
</TABLE>
3. INITIAL PUBLIC OFFERING
The Company consummated its initial public offering (the "Offering") on August
16, 1996, at which time it issued 600,000 shares of common stock (.01 par value)
for $5.00 per share and redeemable warrants to purchase 600,000 additional
shares of the Company's common stock at an exercise price of $5.50 per share for
$.10 per warrant (the "Warrants"). The Warrants are exercisable until August 12,
2000. On October 4, 1996, the Company issued an additional 90,000 Warrants
pursuant to the over-allotment option granted to its underwriter with respect to
the Offering. The Company received net proceeds from the Offering of $2,675,556
(excluding the proceeds of $7,830 derived from the underwriter's exercise of the
over-allotment option), and recorded an increase to stockholders' equity in the
amount of $1,970,466 which is net of $705,090 in deferred costs of the equity
offering which were paid for by the Company prior to consummation of the
transaction.
F-24
<PAGE>
<PAGE>
======================================= =====================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER,
SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THE PROSPECTUS.
-----------------
TABLE OF CONTENTS
Page
Available Information...............
Prospectus Summary..................
Risk Factors........................
Use of Proceeds.....................
Capitalization......................
Dividend Policy.....................
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.......................
Business............................
Management..........................
Certain Transactions................
Principal Security Holders..........
Shares Eligible for Future Sale.....
Underwriting........................
Legal Matters.......................
Experts.............................
Financial Statements................
-----------------
3,750,000 UNITS
EACH UNIT CONSISTING OF ONE
SHARE OF COMMON STOCK AND
ONE CLASS A COMMON STOCK
PURCHASE WARRANT
PIONEER COMMERCIAL
FUNDING CORP.
----------------------
P R O S P E C T U S
----------------------
LT LAWRENCE & CO., INC.
_________, 1997
======================================= =====================================
<PAGE>
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VIII of the bylaws of Pioneer Commercial Funding Corp.
(the "Company") provide for the indemnification of directors and officers to the
fullest extent permitted by law.
Section 722 of the New York Business Corporation Law (the "BCL")
provides that a corporation may indemnify an individual made party to a
proceeding because he is or was a director or officer in certain situations,
provided that the director acted in good faith for a purpose which he reasonably
believed to be in the best interests of the corporation. In addition, Section
723 of the BCL provides that a corporation shall indemnify a director or officer
who prevails entirely in the defense of any proceeding to which he was a party
because he is or was a director, against reasonable expenses incurred by him in
connection with the proceeding. Section 724 of the BCL provides that,
notwithstanding any action taken by the corporation, or by its shareholders or
directors to deny indemnification to any officer or director, he may apply for
and receive such indemnification, upon good cause shown, to the same extent
permitted under BCL Section 722 upon application for such relief to the
appropriate court.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
The Company maintains directors' and officers' liability
insurance coverage with limits of $1,000,000 per occurrence.
The Company has agreed to enter into employment agreements with
Arthur H. Goldberg and Elie Housman, and it has entered into an employment
agreement with Glenda Klein, providing for indemnification to the fullest extent
permitted by law. The Company has also entered into indemnification agreements
with each of its other directors which provide for indemnification to the
fullest extent permitted by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
Common Stock being registered. All amounts are estimates except the registration
fee, the NASD and Nasdaq SmallCap Market fees and the Boston Stock Exchange and
pacific Stock Exchange fees.
II-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Amount To
Be Paid
---------
<S> <C>
SEC Registration fee....................................... $ 4,668
NASD Filing fee............................................ 2,041
Nasdaq SmallCap Market fees................................ 14,100
Boston Stock Exchange listing fees......................... 15,000
Pacific Stock Exchange filing fees......................... 22,500
Printing expenses.......................................... 75,000
Legal fees and expenses.................................... 135,000
Accounting fees and expenses............................... 45,000
Blue sky fees and expenses................................. 45,000
Warrant agent fees......................................... 7,500
Stock and Class A Warrant certificates..................... 3,500
Miscellaneous.............................................. 30,691
--------
Total............................................... $400,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following tables set forth (i) the number of shares of Common
Stock issued by the Company and the number of shares of common stock and
preferred stock issued by Pioneer during the past three years without
registration under the Securities Act, (ii) the date of such issuance, and (iii)
the consideration per share for each issuance. There were no underwriting
discounts or commissions paid in connection with the issuance of any of these
securities. Unless otherwise noted, the consideration was paid in cash.
<TABLE>
<CAPTION>
The Company:
- ------------ Number of Shares Consideration
Purchaser Date of Common Stock Per Share ($)
- --------- ---- ----------------- -------------
<S> <C> <C> <C>
Arthur H. Goldberg 3/23/94 92,755 (1) (2)
Elie Housman 3/23/94 55,653 (1) (2)
Jon Housman 3/23/94 18,551 (1) (2)
Daniel Housman 3/23/94 18,551 (1) (2)
Richard Friedman 3/10/94 7,576 (1) (3)
1/15/96 2,424 (4)
Richard Gurian 3/10/94 1,893 (1) (3)
2/01/96 3,107 (5)
Jeffrey Markowitz 3/10/94 7,576 (1) (3)
1/15/96 2,424 (4)
Christian D. and
Katherine Ericksen 3/10/94 5,682 (1) (3)
2/01/96 9,318 (5)
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Pioneer (3):
- ------------ Class B Class A
Purchaser Date Common Stock Preferred Stock Per Share($)
- --------- ---- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Uri Lieber 5/3/93 237,000 (6a) (7)
Esther Bier 5/3/93 20,000 (6b) (7)
Richard Fried 5/3/93 50,000 (6c) (7)
Glenda Klein 5/3/93 10,000 (6d) (7)
Harry Falk 1/27/94 40,000 (6e) 1.00
Uri Guefan 1/27/94 25,000 (6f) 1.00
Imperial Valley
Emergency Phy-
sicians Retire-
ment Trust 1/27/94 25,000 (6g) 1.00
Allyson Klein 1/27/94 5,000 (6h) 1.00
Tamar Ruth Lieber 1/27/94 100,000 (6i) 1.00
Michael Loewenthal 1/27/94 100,000 (6j) 1.00
Martha Jacob Reis 1/27/94 30,000 (6k) 1.00
Shamiz, S.A. 6/7/94 186,916(6l) 1.07(8)
ICTS Holland
Production B.V. 10/25/94 176,136 (1) 2.84(1)
</TABLE>
- -------------------------------
(1) Adjusted to account for the 1 to .758 reverse split of the Company's Common
Stock implemented in June 1996 (the "June 1996 Stock Split").
(2) The per share price (adjusted to account for the June 1996 Stock Split) of
$.81 was determined prior to the negotiation of the Bridge Financing
transactions to be the fair market value of such shares on the basis of the high
risk undertaken by such investors in subscribing for the shares of a company
which had no business operations of its own, and which would not be able to
merge with Pioneer in the absence of any assurance, at that time, that the
public offering upon which the merger of PCF and Pioneer was conditioned, would
be achieved. A valuation of $150,000 was determined arbitrarily and did not
reflect any inherent fair market value therein.
II-3
<PAGE>
<PAGE>
(3) Represents shares issued as additional consideration in connection with
certain interim financing arrangements between the Company and certain lenders.
(4) Represents shares issued to counter the dilutive effects of the June 1996
Stock Split in consideration of the shareholder's waiver of any defaults which
may have existed under a Bridge Financing agreement.
(5) Represents shares issued to counter the dilutive effects of the June 1996
Stock Split in consideration of the shareholder's waiver of any defaults which
may have existed under a Bridge Financing agreement, and additional shares
issued in consideration of the shareholder's agreement to extend the maturity
date under such Bridge Financing agreement.
(6) In August, 1994, Pioneer implemented, in contemplation of its merger with
and into the Company, a reverse stock split, pursuant to which the aggregate
number of issued and outstanding shares of all classes of its capital stock were
reduced from 2,060,035 shares to 655,126 shares (the "Stock Split"). As a result
thereof, and the June 1996 Stock Split, the number of shares of common and
preferred stock held by each of Pioneer's shareholders was reduced and
thereafter converted into the following shares of the Company's Common Stock:
(6a) 57,098 (6b) 4,818 (6c) 12,046 (6d) 2,409
(6e) 9,636 (6f) 6,023 (6g) 6,023 (6h) 1,205
(6i) 24,092 (6j) 24,092 (6k) 7,228 (6l) 45,033
(7) These shares were issued immediately subsequent to Pioneer's emergence from
bankruptcy. The per share price thereof of $.01 per share was determined
arbitrarily and did not reflect any inherent fair market value therein.
(8) On June 7, 1994, this shareholder's revolving credit loan in the principal
amount of $200,000 was converted into preferred shares at the rate of $1.07 per
share.
Exemption from the registration provisions of the 1933 Act for
the transactions set forth above is claimed under Section 4(2) of the Securities
Act, among others, on the basis that such transactions did not involve any
public offering and the purchasers were sophisticated with access to the kind of
information registration would provide. No underwriting fees were paid in
connection with the foregoing transactions. However, a finder's fee of $20,000
was paid to The Blackmor Group, Inc., an unaffiliated party, for arranging the
Bridge Financing.
II-4
<PAGE>
<PAGE>
ITEM 27. EXHIBITS.
Exhibit No. Description
1.1 Form of Underwriting Agreement.*
1.2 Form of Agreement Among Underwriters.*
1.3 Form of Selected Dealers Agreement.*
2.1 Modified Plan of Merger Between the Company and Pioneer.
3.1 Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Certificate of Amendment of the Company's Certificate of
Incorporation.
4.1 The Company's Non-Qualified Stock Option Plan.
4.2 Specimen Stock Certificate of the Company's Common
Stock.
4.3 Specimen Class A Warrant Certificate.*
4.4 Form of Class A Warrant Agreement. *
4.5 Form of Lockup Agreement.*
4.6 Form of Representative's Warrant Agreement and
Representative's Warrant Certificate.*
4.7 Form of Option issued to the Company's Executives.
4.8 Form of Option issued to United Mizrahi Bank & Trust
Company.
5 Opinion of Hall Dickler Kent Friedman & Wood, regarding
the legality of the Units, Common Stock and the Class A
Warrants. *
10.1 Revolving Line of Credit and Security Agreement between
United Mizrahi Bank and Trust Company and the Company, as
amended.
10.2 Employment Agreement between the Company and Glenda S.
Klein.
II-5
<PAGE>
<PAGE>
10.3 Stock Purchase Agreement dated as of December 23, 1996
between the Company and Trans Lending Corporation
10.4 Noncompete Agreement dated as of December 23, 1996 between
the Company and Kenneth Germain
10.5 Employment Agreement dated as of December 23, 1996 between
Trans Lending and Kenneth Germain.*
10.6 Employment Agreement between the Company and Arthur H.
Goldberg.*
10.7 Employment Agreement between the Company and Elie
Housman.*
23.1 Consent of Independent Certified Public Accountants (See
Part II, Page 10).
23.2 Consent of Counsel (See Part II, Page 11).
24 Power of Attorney (See Part II, Page 9).
- ----------------------------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
A. Certificates
The Registrant hereby undertakes to provide to the Underwriter at
the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
B. Rule 415 Offering
The Registrant hereby undertakes:
II-6
<PAGE>
<PAGE>
(1) To file, during any period in which it offers or sells any of
the securities which are the subject of the prospectus included within this
Registration Statement, a post-effective amendment to this Registration
Statement: (i) to include any prospectus required by Section 10(a)(3) of the
Securities Act; (ii) to reflect in the prospectus any facts or events which,
individually or together, represent fundamental change in the information set
forth in the Registration Statement; (iii) to include any additional or changed
material information with respect to the plan of distribution.
(2) For purposes of determining any liability under the
Securities Act, the Registrant will treat each post-effective amendment as a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
C. Request for Acceleration of Effective Date
The Company may elect to request acceleration of the effective
date of the Registration Statement under Rule 461 of the Securities Act of 1933.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
D. Reliance on Rule 430A
(1) For purposes of determining liability under the Securities
Act, the Registrant will treat the information omitted from the form of
prospectus filed
II-7
<PAGE>
<PAGE>
as part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or
497(h) under the Securities Act ('ss.''ss.'230.424(b)(1), (4) or 230.497(h)) as
part of this Registration Statement as of the time the Commission declared it
effective.
(2)For purposes of determining liability under the Securities
Act, the Registrant will treat each post-effective amendment as a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-8
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City, County and State of New York on the 27th day of December, 1996
Pioneer Commercial Funding Corp.
By: /s/ Arthur H. Goldberg
--------------------------------
Arthur H. Goldberg, Chief Executive Officer
(Principal Executive Officer)
In accordance with the requirements of the Securities Act of
1933, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Arthur H. Goldberg his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as full to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or
either of them or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- -----
/s/ Arthur H. Goldberg Director, Chief December 27, 1996
- --------------------------- (Principal) Executive
Arthur H. Goldberg Officer
/s/ Elie Housman Director, December 27, 1996
- --------------------------- President
Elie Housman
II-9
<PAGE>
<PAGE>
/s/ Glenda Klein Director, Sr. Vice Pres., December 27, 1996
- --------------------------- Secretary, Treasurer,
Glenda Klein Chief Financial
(Principal Accounting)
Officer)
- --------------------------- Director December , 1996
Tamar Lieber
/s/ Richard Fried Director December 27, 1996
- ---------------------------
Richard Fried
- --------------------------- Director December , 1996
Boaz Harel
/s/ Mark Roth Director December 27, 1996
- ---------------------------
Mark Roth
II-10
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Pioneer Commercial Funding Corp.
As independent public accountants, we hereby consent to the use
of our report (and all references made to our firm) with respect to the
financial statements for the years ended March 31, 1995 and 1996 for Pioneer
Commercial Funding Corp. included in or made part of this registration statement
and prospectus.
ARTHUR ANDERSEN LLP
New York, New York
December 27, 1996
II-11
<PAGE>
<PAGE>
CONSENT OF COUNSEL
We consent to use of our firm's name and to statements with
respect to our Firm, as they appear under the heading "Legal Matters" in the
Prospectus which is included in Part I of this Registration Statement.
HALL DICKLER KENT FRIEDMAN & WOOD LLP
New York, New York
December 27, 1996
II-12
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- -------- ------------
2.1 Modified Plan of Merger Between the Company
and Pioneer.
3.1 Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Certificate of Amendment of the Company's Certificate
of Incorporation.
4.1 The Company's Non-Qualified Stock Option Plan.
4.2 Specimen Stock Certificate of the Company's Common Stock.
4.7 Form of Option issued to the Company's Executive.
4.8 Form of Option issued to United Mizrahi Bank & Trust Company
10.1 Revolving Line of Credit and Security Agreement between United
Mizrahi Bank and Trust Company and the Company, as amended
10.2 Employment Agreement between the Company and Glenda S. Klein.
10.3 Stock Purchase Agreement dated as of December 23, 1996 between
the Company and Trans Lending Corporation
10.4 Noncompete Agreement dated as of December 23, 1996 between the
Company and Kenneth Germain
23.1 Consent of Independent Certified Public Accountants (See Part II,
Page 10).
23.2 Consent of Counsel (See Part II, Page 11).
24 Power of Attorney (See Part II, Page 9).
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as .....'ss'.
<PAGE>
<PAGE>
PLAN OF MERGER
of
PIONEER COMMERCIAL FUNDING CORP.,
a New York Corporation
into
PCF ACQUISITION CORP.,
a New York Corporation
The Plan of Merger (hereafter designated the "Plan"), as
heretofore adopted, whereby Pioneer Commercial Funding Corp., a New York
corporation (hereinafter called "Pioneer"), shall merge with and into PCF
Acquisition Corp., a New York corporation (hereinafter called the "Surviving
Corporation"), is hereby modifed and restated, as follows:
1. The constituent corporations to this Plan are Pioneer and the
Surviving Corporation. The surviving corporation under this merger shall be the
Surviving Corporation.
2. The designation and number of outstanding shares of each class
and series of capital stock for each constituent corporation to this Plan are,
as follows:
(a) the Surviving Corporation has present authorized capital
consisting of 5,000,000 shares of common stock, $.01 par value, all of which
stock is voting stock and of which 274,874 shares are issued and outstanding.
(b) Pioneer has present authorized capital consisting of (i)
1,000,000 shares of Class A Common Stock, $.01 par value, all of which stock is
voting stock and of which 318,017 shares are issued and outstanding; (ii)
1,000,000 shares of Class B Common Stock, $.01 par value, all of which stock is
voting stock and of which 406,811 shares are issued or outstanding; and (iii)
2,000,000 shares of Class A Preferred Stock, $.01 par value, none of which stock
is voting stock and of which 162,798 shares are issued and outstanding.
3. The terms and conditions of the merger, including the manner
and basis of converting the shares of Pioneer into the shares or other
securities of the Surviving Corporation, are as follows:
(a) Each issued and outstanding share of Class A Common Stock,
Class B Common Stock and Class A Preferred Stock of Pioneer held by shareholders
of Pioneer immediately prior to the effective date of the merger to be effected
by this Plan (the "Effective Date") shall be changed and converted, upon such
Effective Date, into one share of the Common Stock of the
<PAGE>
<PAGE>
Surviving Corporation.
(b) After the Effective Date, each holder of outstanding
certificates representing shares of capital stock of Pioneer shall surrender the
same to the Surviving Corporation and each such holder shall be entitled, upon
such surrender, to receive the number of shares of Common Stock of the Surviving
Corporation as is provided for in subparagraph (a) of this paragraph 3.
(c) Upon the Effective Date, the separate existence of Pioneer
shall cease and said corporation shall be merged with and into the Surviving
Corporation and the Surviving Corporation shall possess all the rights,
privileges, powers, and franchises of a public and private nature and shall be
subject to all the duties of each of the corporations parties to this Plan, and
all and singular the rights, privileges, powers, and franchises of each of the
corporations parties to this Plan, and all property, real, personal, and mixed,
and all debts due to any of the corporations parties to this Plan on whatever
account shall be vested in the Surviving Corporation; and all property, rights,
privileges, powers, contracts, and franchises and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the respective corporations parties to this Plan; but all rights of creditors
and all liens upon any property of either of the corporations parties to this
Plan shall be preserved unimpaired and all debts, liabilities and duties of the
respective corporations parties to this Plan shall thenceforth attach to the
Surviving Corporation and be enforceable against it to the same extent as if
said debts, liabilities, and duties had been incurred or contracted by it.
(d) If, at any time, the Surviving Corporation shall consider
or be advised that any further assignments or assurances in law or any other
things are necessary or desirable to vest in the Surviving Corporation,
according to the terms hereof, the title to any property or rights of Pioneer,
the proper officers and directors of Pioneer shall and will execute and make all
such proper assignments and assurances and do all things necessary or proper to
vest title in such property or rights in the Surviving Corporation and otherwise
to carry out the purposes of this Plan.
(e) Upon the Effective Date, the assets and liabilities of the
corporations parties to this Plan shall be carried on the books of the Surviving
Corporation at the amounts at which they respectively shall be carried on such
date on the books of the corporations parties to this Plan. The capital surplus
and earned surplus of the Surviving Corporation shall be the sum of the
respective capital surpluses and earned surpluses of the corporations parties to
this Plan, subject in each case to such intercompany adjustments or eliminations
as may be required to give effect to the merger. The aggregate amount of the net
assets of the corporations parties to this Plan legally available
<PAGE>
<PAGE>
for the payment of dividends immediately prior to the merger, to the extent that
the value thereof is not transferred to stated capital by the issuance of shares
or otherwise, shall continue to be available for the payment of dividends by the
Surviving Corporation.
(f) On the Effective Date, the Board of Directors of the
Surviving Corporation shall be expanded from three members to six members.
Messrs. Arthur H. Goldberg and Elie Housman, who presently serve as directors of
both Pioneer and the Surviving Corporation, shall continue to serve as directors
of the Surviving Corporation upon and after consummation of the merger to be
effected by this Plan. Steven D. Dreyer, the remaining member of the presently
constituted Board of Directors of the Surviving Corporation, shall be deemed to
have resigned as such director upon consummation of the merger to be effected by
this Plan, and the vacancies created by such resignation and said expansion of
the Board of the Surviving Corporation shall be filled by Ms. Glenda Klein, and
Messrs. Uri Lieber, Ezra Harel and Richard Fried, each of whom currently serves
as a director of Pioneer. Each of the directors of the Surviving Corporation
immediately after consummation of the merger to be effected by this Plan shall
continue in office until he or she resigns and/or his or her successor is duly
elected.
(g) Immediately prior to the consummation of the merger to be
effected by this Plan, all of the then duly elected officials of the Surviving
Corporation shall be deemed to have resigned from each of the official positions
respectively held by them. Upon consummation of the merger to be effected by
this Plan, the following persons shall be deemed to have been duly elected to
serve as officials of the Surviving Corporation in the capacities hereinbelow
set forth:
Uri Lieber President (Chief Executive Officer)
and Assistant Secretary
Glenda Klein Senior Vice President, Secretary,
Treasurer and Chief Financial
Officer
Richard Fried Vice President
Each of the officers of the Surviving Corporation immediately after consummation
of the merger to be effected by this Plan shall continue in office until he or
she resigns and/or his or her successor is duly elected.
(h) The bylaws of the Surviving Corporation, as they shall
exist on the Effective Date, shall be and remain the bylaws of the Surviving
Corporation until the same shall be altered, amended, or repealed as therein
provided.
(i) On the Effective Date, the name of the
<PAGE>
<PAGE>
Surviving Corporation shall be changed to Pioneer Commercial Funding Corp.
4. In order to implement the change of the name of the Surviving
Corporation, as provided in paragraph 3(h) hereof, the Certificate of
Incorporation of the Surviving Corporation shall be amended as follows:
Paragraph FIRST shall be amended to read:
"FIRST: The name of the corporation is PIONEER COMMERCIAL
FUNDING CORP."
5. Anything herein or elsewhere contained to the contrary
notwithstanding, the Plan may be modified, and/or terminated and abandoned by
mutual consent of the Boards of Directors of the corporations party hereto at
any time prior to the Effective Date.
6. The Effective Date (as such term is used herein) of the Plan,
and the merger to be effected hereby, shall be the date when the certificate of
merger required to be filed by the New York Department of State in order to
effectuate the merger contemplated herein shall have been filed.
IN WITNESS WHEREOF, each of the corporations, parties hereto, has
caused this Plan to be executed on its behalf by the officers hereinbelow
identified.
Dated: As of November 4, 1994
PIONEER COMMERCIAL FUNDING CORP, PCF ACQUISITION CORP.,
a New York Corporation a New York corporation
By:_____________________________ By:___________________________
Uri Lieber, President Arthur H. Goldberg, Pres.
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CERTIFICATE OF INCORPORATION
OF
PCF ACQUISITION CORP.
Under Section 402 of the Business Corporation
Law of the State of New York
The undersigned, being of legal age, in order to form a corporation
under and pursuant to the laws of the State of New York, do hereby set forth as
follows:
FIRST: The name of the corporation is
PCF ACQUISITION CORP.
SECOND: This corporation is formed to engage in any lawful act or
activity for which corporations may be organized under the Business Corporation
Law of the State of New York, provided that it is not formed to engage in any
act or activity which requires the consent or approval of any state official,
department, board, agency or other body, without such approval or consent first
being obtained.
THIRD: The office of the corporation in the State of New York shall be
located in the County of New York.
FOURTH: a) The corporation shall be authorized to issue the following
shares:
<TABLE>
<CAPTION>
Class Number of Shares Par Value
----- ---------------- ---------
<S> <C> <C>
COMMON 5,000,000 $.01
</TABLE>
b) No holder of any shares of the corporation shall, because of his
ownership of shares of the corporation, have a pre-emptive or other
right to purchase, subscribe for, or take any part of any shares of the
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corporation, or any part of any notes, debentures, bonds, or other
securities convertible into or providing for options or warrants to
purchase shares of the corporation which are issued, offered, or sold by
the corporation after its incorporation, whether the shares, notes,
debentures, bonds, or other securities, be authorized by this
certificate of incorporation or by an amended certificate duly filed and
in effect at the time of the issuance, offer, or sale of such shares,
notes, debentures, bonds, or other securities. Any part of the shares
authorized by this certificate of incorporation, or by an amended
certificate duly filed and any part of any notes, debentures, bonds, or
other securities convertible into or providing for options or warrants
to purchase shares of the corporation may at any time be issued, offered
for sale, and sold or disposed of by the corporation, pursuant to a
resolution of its Board of Directors and to such persons and upon such
terms and conditions as the Board of Directors may, in its sole
discretion, deem proper and advisable, without first offering to
existing shareholders any part of such shares, notes, debentures, bonds,
or other securities.
FIFTH: The Secretary of State is designated as the agent of the
corporation upon whom process against the corporation may be served, and the
address to which the Secretary of State shall mail a copy of any process against
the corporation served upon him is c/o Ohrenstein & Brown, 230 Park Avenue-32nd
Floor, New York, New York 10169.
SIXTH: The shareholders or the Board of Directors of the corporation
shall have the power to adopt, alter, amend or repeal the By-Laws of the
corporation.
SEVENTH: (a) The corporation may, to the fullest extent permitted by
Section 721 through 726 of the Business Corporation Law of New York, indemnify
any and all directors and officers whom it shall have power to indemnify under
the said sections from and against any and all of the expenses, liabilities or
other matters
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referred to in or covered by such section, and the indemnification
provided for herein shall not be deemed exclusive of any other rights to which
the persons so indemnified may be entitled under any By-Law, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in
his/her official capacity and as to action in another capacity by holding such
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefits of the heirs, executors and
administrators of such a person.
(b) A director of this Corporation shall not be personally
liable to the Corporation or its shareholders for damages for any breach of duty
in his/her capacity as a director, unless a judgment or other final adjudication
adverse to him/her establishes that (1) his/her acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law, or (ii)
he/she personally gained in fact a financial or other advantage to which he/she
was not legally entitled or (iii) his/her acts violated Section 719 of the
Business Corporation Law.
EIGHTH: A director or officer of the Corporation shall not, in the
absence of fraud, be disqualified from his/her office by dealing with or
contracting with the Corporation as vendor, purchaser or otherwise.
In the absence of fraud, no transaction, contract or act of the
Corporation, the Board of Directors, the Executive Committee of the Board of
Directors, or any other duly constituted committee, shall be void, voidable or
affected by reason of the fact that any director or officer of the Corporation,
or any firm of which any director or officer of the Corporation is a member, or
any corporation of which any director or officer of the Corporation is an
officer, director, or shareholder, is in any way interested in the transaction,
contract or act, if either:
(a) the fact of such common directorship, officership, or
financial or other interest is disclosed or known to the Board of
Directors or the Executive Committee, and the Board of Directors or the
Executive Committee approves
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the transaction, contract or act by a vote sufficient for such purposes
without the vote of such interested director, if any; provided that any
such director may be counted in determining the presence of a quorum at
any such meeting of the Board of Directors or the Executive Committee;
or
(b) the fact of such common directorship, officership or
financial or other interest is disclosed or known to the shareholders
entitled to vote on the transaction, contract or act and the
transaction, contract or act is approved by vote of the shareholders
entitled to vote thereon, whether or not the Board of Directors or the
Executive Committee has approved the transaction, contract or act.
Any such transaction, contract or act which is ratified by a majority in
interest of a quorum of the shareholders of the Corporation having voting power
at any annual or special meeting called for such purpose, shall, if such common
ownership or financial or other interest is disclosed in the notice of the
meeting, be valid and as binding as though approved or ratified by every
shareholder of the Corporation, except as otherwise provided by the laws of the
State of New York.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that
the statements made herein are true under the penalties of perjury, this eighth
day of March, 1994.
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
S/MARK SKUBICKI
--------------------------------- 10 Bank Street
Mark Skubicki, Incorporator White Plains, New York 10606
S/MARIA R. FISCHETTI
---------------------------------- 10 Bank Street
Maria R. Fischetti, Incorporator White Plains, New York 10606
</TABLE>
<PAGE>
<PAGE>
CERTIFICATE OF INCORPORATION
OF
PCF ACQUISITION CORP.
Under Section 402 of the Business Corporation
Law of the State of New York
Ohrenstein & Brown
230 Park Avenue, 32nd Floor
New York, New York 10169
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================================================================================
BY-LAWS OF
PIONEER COMMERCIAL FUNDING CORP.
Adopted: March 9, 1994
================================================================================
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TABLE OF CONTENTS
Page
----
ARTICLE I - OFFICES ................................................... 1
1.01 Location ................................................... 1
1.02 Change of Location ......................................... 1
ARTICLE II - SHAREHOLDERS ............................................. 1
2.01 Place of Meetings .......................................... 1
2.02 Annual Meeting ............................................. 1
2.03 Special Meetings ........................................... 2
2.04 List of Shareholders Entitled to Vote ...................... 2
2.05 Notice of Meetings ......................................... 3
2.06 Adjourned Meetings and Notice Thereof ...................... 3
2.07 Quorum ..................................................... 3
2.08 Voting ..................................................... 3
2.09 Waivers of Notice of Meetings .............................. 4
2.10 Action by Consent of Shareholders .......................... 4
2.11 Proxies .................................................... 4
2.12 Voting of Pledged Shares ................................... 5
2.13 Voting of Redeemable Shares ................................ 5
2.14 Officers of Meetings ....................................... 5
2.15 Order of Business .......................................... 5
2.16 Use of Ballots ............................................. 6
2.17 Inspectors ................................................. 6
ARTICLE III - BOARD OF DIRECTORS ...................................... 6
3.01 General Powers ............................................. 6
3.02 Number of Directors ........................................ 7
3.03 Qualification .............................................. 7
3.04 Election ................................................... 7
3.05 Term ....................................................... 7
3.06 Resignation and Removal .................................... 7
3.07 Vacancies .................................................. 8
3.08 Quorum and Voting .......................................... 8
3.09 Regulations ................................................ 8
3.10 Annual Meeting of Board of Directors ....................... 9
3.11 Regular Meetings ........................................... 9
3.12 Special Meetings ........................................... 9
3.13 Notice of Meetings ......................................... 9
3.14 Compensation of Directors .................................. 10
3.15 Action Without Meeting ..................................... 10
3.16 Use of Communication Equipment ............................. 10
ARTICLE IV - COMMITTEES OF THE BOARD OF DIRECTORS ..................... 10
4.01 Establishment of Committees ................................ 10
4.02 Executive Committee ........................................ 11
4.03 Audit Committee ............................................ 11
4.04 Finance Committee .......................................... 12
4.05 Stock Option Committee ..................................... 12
4.06 Nominating Committee ....................................... 13
4.07 Presiding Officer and Secretary ............................ 13
4.08 Vacancies .................................................. 13
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4.09 Meetings ...................................................... 13
4.10 Notice of Meetings ............................................ 13
4.11 Quorum; Voting ................................................ 13
4.12 Reports ....................................................... 14
4.13 Limitations on Powers ......................................... 14
4.14 Powers of the Board ........................................... 14
ARTICLE V - OFFICERS .................................................... 14
5.01 Election ...................................................... 14
5.02 Additional Offices ............................................ 15
5.03 Election and Term of Office ................................... 15
5.04 Vacancies ..................................................... 15
5.05 Removal, Suspension and Resignation ........................... 15
5.06 Powers and Duties ............................................. 15
5.07 Delegation of Duties of Officers .............................. 17
5.08 Bond .......................................................... 17
ARTICLE VI - CAPITAL SHARES ............................................. 17
6.01 Issuance of Certificates for Shares ........................... 17
6.02 Signatures on Share Certificates .............................. 17
6.03 Stock Ledger .................................................. 18
6.04 Regulations Relating to Transfer .............................. 18
6.05 Transfers ..................................................... 18
6.06 Cancellation .................................................. 19
6.07 Lost, Destroyed, Stolen, and Mutilated Certificates ........... 19
6.08 Fixing of Record Dates ........................................ 19
ARTICLE VII - DIVIDENDS ................................................. 20
ARTICLE VIII - INDEMNIFICATION .......................................... 20
8.01 Indemnification ............................................... 20
8.02 Insurance for Indemnification of Directors and Officers ....... 22
ARTICLE IX - MISCELLANEOUS PROVISIONS ................................... 22
9.01 Corporate Seal ................................................ 22
9.02 Fiscal Year ................................................... 23
9.03 Waiver of Notice .............................................. 23
9.04 Execution of Instruments, Contracts, etc ...................... 23
ARTICLE X - AMENDMENTS; EMERGENCY BY-LAWS ............................... 24
10.1 By Shareholders ............................................... 24
10.2 By Directors .................................................. 24
<PAGE>
<PAGE>
BY-LAWS
of
PIONEER COMMERCIAL FUNDING CORP.
a New York Corporation (the "Corporation")
ARTICLE I - OFFICES
1.01 Location. The address of the registered office of the
Corporation in the State of New York and the name of the registered agent at
such address, if any, shall be as specified in the Certificate of Incorporation
or, if subsequently changed, as specified in the most recent certificate of
change filed pursuant to law. The Corporation may also have other offices at
such places within or without the State of New York as the Board of Directors
may from time to time designate or the business of the Corporation may require.
1.02 Change of Location. In the manner permitted by law, the
Board of Directors may change the address of the Corporation's registered office
in the State of New York and the Board of Directors may make, revoke or change
the designation of the registered agent.
ARTICLE II - SHAREHOLDERS
2.01 Place of Meetings. Meeting of shareholders shall be held at
the principal office of the Corporation or at such place within or without the
State of New York as the Board of Directors shall authorize.
2.02 Annual Meeting. The annual meeting of shareholders shall be
held each year on a date and at a time to be selected by the President or the
Board of Directors at least 30 days before such meeting or, in the event the
President or the Board of Directors shall not make such selection at least 30
days prior to the following indicated date, at 10:00 A.M. on the last Friday in
September of each year (if not a legal holiday, and if a legal holiday, then on
the next business day), at such place within or without the State of New York as
shall be stated in the notice of meeting. At such meeting, or at any special
meeting in lieu of the annual meeting, the shareholders shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting.
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The notice of the meeting shall be in writing and signed by the
President or a Vice President or the Secretary or an Assistant Secretary. Such
notice shall state the purpose or purposes for which the meeting is called and
the time when and the place within or without the State where such meeting is to
be held, and a copy thereof shall be served, either personally or by mail upon
each shareholder of record entitled to vote at such meeting, and upon each
shareholder of record, who, by reason of any action proposed at such meeting,
would be entitled to have his stock appraised if such action were taken, not
less than ten or more than fifty days before the meeting. If mailed, it shall be
directed to a shareholder at his address as it appears on the stock book unless
he shall have filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to some other address, in which case it shall
be mailed to the address designated in such request.
2.03 Special Meetings. Special meetings of the shareholders may
be called at any time by the Chairman of the Board, by the President and by the
President or the Secretary at the request in writing of either (a) a majority of
the Board of Directors, or (b) shareholders owning a majority in amount of the
shares issued and outstanding. Such request shall state the purpose or purposes
of the proposed meeting. Business transacted at a special meeting shall be
confined to the purposes stated in the notice.
2.04 List of Shareholders Entitled to Vote. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, or cause
to be prepared and made, at least ten days before every meeting of shareholders,
a complete list, based upon the record date for such meeting determined pursuant
to Section 6.8, of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
of shares registered in the name of each shareholder. Such list shall be open to
the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if such place
shall not be so specified, at the place where said meeting is to be held. The
list shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any shareholder who is present.
The stock ledger shall be the only evidence as to who are the
shareholders entitled (i) to examine the stock ledger, the list of shareholders
entitled to vote at any meeting, or the books
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of the Corporation, or (ii) to vote in person or by proxy at any meeting of
shareholders.
2.05 Notice of Meetings. Written notice of each annual and
special meeting of shareholders, other than any meeting the giving of notice of
which is otherwise prescribed by law, stating the place, date and hour of the
meeting, and, in the case of a special meeting, indicating the purpose or
purposes thereof and that it is being issued by or at the direction of the
person or persons calling the meeting, shall be delivered or mailed in writing
at least ten but not more than fifty days before such meeting, to each
shareholder required or permitted to take any action or entitled to vote
thereat. If mailed, such notice shall be deposited in the United States mail,
postage prepaid, directed to such shareholder at his address as the same appears
on the records of the Corporation. An affidavit of the Secretary, an Assistant
Secretary or the transfer agent of the Corporation that notice has been given by
mail shall be evidence of the facts stated therein.
2.06 Adjourned Meetings and Notice Thereof. Any meeting of
shareholders may be adjourned to another time or place, and the Corporation may
transact at any adjourned meeting any business which might have been transacted
at the original meeting. Notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken, unless (a) any adjournment or series of adjournments cause the
original meeting to be adjourned for more than thirty days after the date
originally fixed therefor, or (b) a new record date is fixed for the adjourned
meeting. If notice of any adjourned meeting is given, such notice shall be given
to each shareholder of record entitled to vote at the adjourned meeting in the
manner prescribed in Section 2.5 for giving of notice of meetings.
2.07 Quorum. At any meeting of shareholders, except as otherwise
expressly required by law, or by the Certificate of Incorporation, the holders
of record of at least a majority of the outstanding Capital Shares entitled to
vote or act at such meetings shall be present or represented by proxy in order
to constitute a quorum for the transaction of any business, but less than a
quorum shall have power to adjourn any meeting unless a quorum shall be present.
When a quorum is once present to organize a meeting, the quorum cannot be
destroyed by the subsequent withdrawal or revocation of the proxy of any
shareholder. Capital shares owned by the Corporation or by another corporation,
if a majority of its shares entitled to vote in the election of directors is
held by the Corporation, shall not be counted for quorum purposes or entitled to
vote.
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2.08 Voting. At any meeting of shareholders each shareholder
holding, as of the record date, shares entitled to be voted on any matter at
such meeting shall have one vote on each such matter submitted to vote at such
meeting for each such share held by such shareholder as of the record date as
shown by the list of shareholders entitled to vote at the meeting, unless the
Certificate of Incorporation provides for more or less than one vote for any
share on any matter, in which case every reference to a required proportion of
shares shall refer to the proportion of the votes of such shares.
Each shareholder entitled to vote at a meeting of shareholders or
to express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for him by proxy, provided that
no proxy shall be voted or acted upon after eleven months from its date, unless
the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only so long as, it
is coupled with an interest, whether in the shares themselves or in the
Corporation, sufficient in law to support an irrevocable power.
2.09 Waivers of Notice of Meetings. Notice of meeting need not be
given to any shareholder who signs a waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any shareholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him.
2.10 Action by Consent of Shareholders. Unless otherwise provided
in the Certificate of Incorporation, whenever any action by the shareholders at
a meeting thereof is required or permitted by law, the Certificate of
Incorporation, or these By-Laws, such action may be taken without a meeting,
without prior notice and without a vote if a consent in writing, setting forth
the action so taken, shall be signed by the holders of all the outstanding
shares entitled to vote thereon.
2.11 Proxies. Every shareholder entitled to vote at a meeting of
shareholders may authorize another person or persons to act by written proxy
(which may be in the form of a telegram or cable or its equivalent) given by the
shareholder or the shareholder's agent. No proxy shall be valid for more than
eleven months, unless a longer time is expressly provided in the proxy. Unless
it is coupled with an interest or is otherwise irrevocable as provided in the
Business Corporation Law, a proxy shall be revocable at will. The grant of a
later proxy revokes any earlier proxy unless the earlier proxy is irrevocable. A
proxy shall not
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be revoked by the death or incapacity of the shareholder but shall continue in
force until revoked by the personal representative or guardian of the
shareholder. The presence at any shareholders' meeting of any shareholder who
has given a proxy shall not revoke the proxy unless the shareholder files
written notice of revocation with the Secretary of the meeting before the voting
of that proxy or the voting of the shares subject to the proxy by written
ballot. A person named in a proxy as the attorney or agent of a shareholder may,
if the proxy so provides, substitute another person to act in his or her place,
including any other person named as an attorney or agent in the same proxy. The
substitution shall not be effective until an instrument effecting it is filed
with the Secretary of the Corporation.
2.12 Voting of Pledged Shares. Any person who has pledged shares
entitled to vote at an annual or special meeting of shareholders of this
Corporation shall have the right to vote those shares until they have been
transferred into the name of the pledgee or a nominee of the pledgee.
2.13 Voting of Redeemable Shares. If the Corporation issues
redeemable shares, the holders of those shares shall not be entitled to vote on
any matter on or after the date on which (a) written notice of redemption of the
shares has been mailed to the holders of those shares, and (b) a sum sufficient
to redeem the shares has been deposited with a bank or trust company with
irrevocable authorization to pay the redemption price to the shareholders on the
surrender of the share certificates.
2.14 Officers of Meetings. The Chairman of the Board shall
preside at all meetings of the Board of Directors at which he or she is present.
If the President is a member of the Board, the President shall preside at all
meetings of the Board at which the Chairman of the Board is absent and the
President is present. If the Chairman of the Board is absent and the President
is either absent or not a member of the Board of Directors, the Executive Vice
President (or, in the absence of the Executive Vice President, the most senior
Vice President) present at the meeting, shall preside. The Secretary of the
Corporation shall, if present, act as secretary at all meetings of shareholders.
In the absence of the Secretary, any Assistant Secretary of the Corporation who
is present may act as secretary of the meeting. If no Assistant Secretary is
present, a temporary secretary for that particular meeting shall be designated
by the presiding officer.
2.15 Order of Business. The order of business at all meetings of
the shareholders, unless changed by a majority vote of the shares entitled to
vote at the meeting, shall be as follows:
(a) Call to order;
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(b) Report on presence of quorum;
(c) Reading or waiver of proof of mailing of notice of
meeting and minutes of preceding meeting;
(d) Designation of inspectors of election, if any;
(e) Election of directors (if applicable);
(f) Old business;
(g) New business;
(h) Reports of officers; and
(i) Adjournment.
2.16 Use of Ballots. Elections of directors and other matters
requiring shareholder approval need not be by ballot unless a shareholder
requests a vote by ballot on a particular issue before the commencement of
voting on that issue.
2.17 Inspectors.
(a) Before any annual or special meeting of shareholders,
the Board of Directors may appoint one or more inspectors to act as such at the
meeting.
(b) In connection with any annual or special meeting of
shareholders, if inspectors are not appointed by the Board of Directors or if
they fail to qualify, the presiding officer at the meeting may and, on the
request of any shareholder entitled to vote at the meeting, shall appoint one or
more individuals to act as inspectors at the meeting.
(c) If an individual appointed as inspector fails to
appear, qualify, or act as an inspector, the vacancy may be filled by the Board
of Directors before the applicable meeting or at the meeting by the presiding
officer at the meeting.
(d) Before performing their duties, all inspectors shall
sign an oath or affirmation to execute faithfully the duties of inspector with
strict impartiality and according to the best of their abilities.
(e) No person shall be elected a director at a meeting at
which he or she has served as an inspector.
ARTICLE III - BOARD OF DIRECTORS
6
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3.01 General Powers. The property, business and affairs of the
Corporation shall be managed by the Board of Directors. The Board of Directors
may exercise all such powers of the Corporation and have such authority and do
all such lawful acts and things as are permitted by law, the Certificate of
Incorporation or these By-Laws.
3.02 Number of Directors. The Board of Directors of the
Corporation shall consist of at least three and not more than seven members,
provided, however, that when all of the issued and outstanding shares of the
Corporation's capital stock are owned by less than three shareholders, the
number of directors may be less than three but not less than the number of
shareholders. Subject to the foregoing limitations, the number of directors
constituting the entire Board of Directors, to serve until the next annual
meeting of shareholders, shall be such number as shall be designated by
resolution of the Board of Directors adopted prior to the annual meeting of
shareholders. In the absence of such resolution, the number of directors to be
elected at such annual meeting shall be the number last fixed by the directors,
and if no such number ever shall have been fixed by the directors, the Board of
Directors shall consist of three members.
3.03 Qualification. Directors must be at least eighteen years of
age, but need not be shareholders of the Corporation.
3.04 Election. Except as otherwise provided by law, the
Certificate of Incorporation, or these By-Laws, after the first meeting of the
Corporation at which directors are elected, directors of the Corporation shall
be elected in each year at the annual meeting of shareholders, or at a special
meeting in lieu of the annual meeting called for such purpose, by a plurality of
votes cast at such meeting. The voting on directors at any such meeting need not
be written ballot.
3.05 Term. Each director shall hold office until the expiration
of the term for which he is elected and until his successor has been elected and
qualified, or until his prior resignation or removal.
3.06 Resignation and Removal. Any director may resign at any time
upon written notice to the Board of Directors, the President or the Secretary.
The resignation of any director shall take effect upon receipt of notice thereof
or at such later time as shall be specified in such notice, and unless otherwise
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specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any or all of the directors may be removed for cause by vote
of the shareholders or by action of the Board of Directors. Directors may be
removed without cause only by vote of the shareholders.
3.07 Vacancies. Vacancies in the Board of Directors (unless the
vacancy be caused by the removal of a director without cause) and newly created
directorships resulting from any increase in the authorized number of directors
shall be filled by a majority of the directors then in office, though less than
a quorum, or by a sole remaining director. A vacancy caused by the removal of a
director without cause shall be filled by a vote of the holders of a majority of
the shares entitled to vote for the election of directors.
If one or more directors shall resign from the Board of Directors
effective at a future date, a majority of the directors then in office,
including those who have so resigned at a future date, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect and the vacancy to be
filled when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in this section for the filling
of other vacancies.
Each director chosen to fill a vacancy on the Board of Directors
shall hold office until the next annual election of directors and until his
successor shall be elected and qualified.
3.08 Quorum and Voting. Unless the Certificate of Incorporation
provides otherwise, at all meetings of the Board of Directors a majority of the
total number of directors (but not less than one-third of the total number of
directors) shall be present to constitute a quorum for the transaction of
business. A director interested in a contract or transaction may be counted in
determining the presence of a quorum at a meeting of the Board of Directors
which authorizes the contract or transaction. In the absence of a quorum, a
majority of the directors present may adjourn the meeting until a quorum shall
be present.
The vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors unless the
Certificate of Incorporation or these By-Laws shall require a vote of a greater
number.
3.09 Regulations. The Board of Directors may adopt such rules and
regulations for the conduct of the business and management of the Corporation,
not inconsistent with law or the
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Certificate of Incorporation or these By-Laws, as the Board of Directors may
deem proper. The Board of Directors may hold its meetings and cause the books
and records of the Corporation to be kept at such place or places within or
without the State of New York as the Board of Directors may from time to time
determine. The Corporation shall keep at its registered office in the State of
New York a record containing the names and addresses of all shareholders of the
Corporation, the number and class of shares held by each shareholder, and the
dates when they respectively became the owners of record. A member of the Board
of Directors shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or reports made to the
Corporation by any of its officers, by an independent certified public
accountant, or by an appraiser selected with reasonable care by the Board of
Directors or any committee of the Board of Directors or in relying in good faith
upon other records of the Corporation.
3.10 Annual Meeting of Board of Directors. An annual meeting of
the Board of Directors shall be called and held for the purpose of organization,
election of officers and transaction of any other business. If such meeting is
held promptly after and at the place specified for the annual meeting of
shareholders, no notice of the annual meeting of the Board of Directors need by
given. Otherwise such annual meeting shall be held at such time (not more than
thirty days after the annual meeting of shareholders) and place as may be
specified in a notice of the meeting.
3.11 Regular Meetings. Regular meetings of the Board of Directors
shall be held at the time and place, within or without the State of New York, as
shall from time to time be determined by the Board of Directors. After there has
been such determination and notice thereof has been given to each member of the
Board of Directors, no further notice shall be required for any such regular
meeting. Except as otherwise provided by law, any business may be transacted at
any regular meeting.
3.12 Special Meetings. Special meetings of the Board of Directors
may, unless otherwise prescribed by law, be called from time to time by the
Chairman of the Board or the President, and shall be called by the President or
Secretary upon the written request of a majority of the whole Board of Directors
directed to the President or the Secretary. Except as provided below, notice of
any special meeting of the Board of Directors, stating the time when and place
where such special meeting shall be held, shall be given to each director.
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3.13 Notice of Meetings. Notice of any meeting of the Board of
Directors shall be deemed to be duly given to a director (i) if mailed to such
director, addressed to him at his address as it appears upon the books of the
Corporation, or at the address last made known in writing to the Corporation by
such director as the address to which such notices are to be sent, at least two
days before the day on which such special meeting is to be held, or (ii) if sent
to him at such address by telegram, mailgram, cable, overnight courier, e.g.,
Federal Express, radio or wireless not later than the day before the day on
which such meeting is to be held, or (iii) if delivered to him personally or
orally, by telephone or otherwise, not later than the day before the day on
which such special meeting is to be held. Each notice shall state the time and
place of the meeting.
3.14 Compensation of Directors. Directors shall or shall not be
compensated for their services and reimbursed for their expenses as employees,
officers, Directors, and members of Board committees in accordance with such
reasonable policies as shall be established from time to time by the affirmative
vote of a majority of Directors in office. The Board may, if it deems it
appropriate, provide for no compensation, or for reduced or no additional
compensation for Board members who are compensated employees of the Corporation.
3.15 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board of Directors or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board of Directors or
such committee.
3.16 Use of Communication Equipment. Unless the Certificate of
Incorporation provides otherwise, where appropriate communication facilities are
reasonably available, any or all of the members of the Board of Directors, or
any committee, thereof may participate in part or in all of a meeting of the
Board by means of conference telephone or by any other means of communication by
which all persons participating in the meeting are able to hear each other.
ARTICLE IV - COMMITTEES OF THE BOARD OF DIRECTORS
4.01 Establishment of Committees. The Board of Directors may
designate an Executive Committee from among its members, consisting of three or
more Directors, and may at any time designate additional committees including,
but not limited
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to, Audit, Finance, Nominating and/or Stock Option Committees, each of which
shall consist of one or more Directors, by the affirmative vote of a majority of
the entire Board. Subject to the limitations contained in Sections 4.02 and 4.13
below, the Executive Committee shall have the maximum authority permitted by law
in effect at the time of the exercise of that authority. Each additional
committee shall have the authority, not exceeding the authority of the Executive
Committee, specified by the Board in resolutions adopted by a majority of the
entire Board.
4.02 Executive Committee.
(a) If the Board of Directors designates an executive
committee, meetings thereof shall be called by the Chairman of such committee,
or by the Secretary, at the direction and upon the request of the Chairman of
such committee, the President, or any two members of such committee. Notice of a
meeting of the Executive Committee shall in each instance be given to each
member of the Executive Committee at such member's last known business address,
at least four hours before a meeting of such committee, either orally or in
writing, delivered personally or by telephone or facsimile transmission. Such
meetings shall be held at such time and place as shall from time to time be
determined by the Executive Committee. At the request of any member of the
Executive Committee during any meeting thereof, a special meeting of the full
Board of Directors may be called and/or a telephonic conference call shall be
placed in order that the full Board of Directors may be informally present at
such meeting, and in such event the effectiveness of any action taken by the
Executive Committee at such meeting shall be contingent upon ratification
thereof by the full Board of Directors.
(b) The Executive Committee may adopt its own rules of
procedure not inconsistent with these by-laws. The Executive Committee shall
have and may exercise, except as otherwise specifically prohibited by the laws
of the State of New York or limited by resolutions passed by a majority of the
whole Board, such powers of the Board of Directors as can lawfully be delegated
by the Board of Directors, subject to the limitations contained in the preceding
Subsection.
4.03 Audit Committee.
(a) If the Board of Directors designates a Stock Option
Committee, such Committee shall be established and comprised solely of Directors
independent of management of the Corporation and free from any relationships
that might, in the opinion of the Board of Directors, be considered to be a
conflict of interest. In addition, a majority of such Audit Committee shall be
composed of independent Directors who were not formerly officers of the
Corporation.
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(b) Meetings of the Audit Committee may be called by any
executive officer of the Corporation, any member of the Audit Committee or the
partner in charge of the Corporation's accounts at the firm of independent
public accountants of the Corporation (the "accountants"), in each case upon two
days' notice to each of the other members of such Committee, either personally
or by mail, telegram or telephone. Such meetings shall be held at such time and
place as shall from time to time be determined by the Audit Committee.
(c) The responsibilities of the Audit Committee shall be as
follows:
(i) To recommend to the Board of Directors for approval
by the shareholders a firm of independent public accountants, hereinafter called
the accountants, to audit the accounts of the Corporation, and such of its
subsidiaries as the Audit Committee may recommend, for the year regarding which
the accountants is appointed.
(ii) To meet jointly and/or separately with the chief
financial officer of the Corporation and the accountants before commencement of
the audit (x) to discuss the evaluation by the accountants of the adequacy and
effectiveness of the accounting procedures and internal controls of the
Corporation and its subsidiaries, (y) to approve the overall scope of the audit
to be made and the fees to be charged, and (z) to inquire regarding and discuss
with the accountants recent Financial Accounting Standards Board, Securities and
Exchange Commission or other regulatory agency pronouncements, if any, which
might affect the Corporation's financial statements.
(iii) To meet jointly and/or separately with the chief
financial officer and the accountants at the conclusion of the audit: (w) to
review the audited financial statements of the Corporation, (x) to discuss the
results of the audit, (y) to discuss any significant recommendations by the
accountants of improvement of accounting systems and controls of the
Corporation, and (z) to discuss the quality and depth of staffing in the
accounting and financial departments of the Corporation.
(iv) To meet and confer with such officers and
employees of the Corporation as the Audit Committee shall deem appropriate in
connection with carrying out the foregoing responsibilities.
4.04 Finance Committee. If the Board of Directors designates a
Finance Committee, at least a majority of the members of such committee shall be
neither officers nor otherwise employed by the Corporation. The Finance
Committee shall have the power to fix from time to time the compensation of all
principal officers
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of the Corporation (other than the Chairman of the Board and the President,
whose compensation shall be fixed from time to time by the Board) and shall
otherwise exercise such powers as may be specifically delegated to it by the
Board and act upon such matters as may be referred to it from time to time for
study and recommendation by the Board or the President.
4.05 Stock Option Committee. If the Board of Directors designates
a Stock Option Committee, at least a majority of the members of such committee
shall be neither officers nor otherwise employed by the Corporation. Such
Committee shall have the power to grant options under any stock option plan of
the Corporation which by its terms is administered by a Stock Option Committee
and shall be authorized to take any and all action necessary to be taken by a
Stock Option Committee pursuant to the terms of any stock option plan adopted by
the Board of Directors. The Stock Option Committee shall also have such other
powers with respect to stock options as may be delegated by the Board of
Directors.
4.06 Nominating Committee. If the Board of Directors designates a
Nominating Committee, at least a majority of the members of such committee shall
be neither officers nor otherwise employed by the Corporation. Such Committee
shall review and make recommendations to the Board with respect to candidates
for Directors of the Corporation and any of its subsidiaries, and to review
assignments of Directors to committees of the Board.
4.07 Presiding Officer and Secretary. If the President is a
member of any committee, the President shall serve as the chairperson of the
committee. If the President is not a member of a committee, then the committee
may choose one of its members to act as chairperson, unless the Board designates
a chairperson. Each committee shall from time to time designate a secretary of
the committee who shall keep a record of its proceedings.
4.08 Vacancies. Vacancies in the membership of any committee may
be filled by the Board, pursuant to a resolution adopted by a majority of the
entire Board, for the unexpired term of the member whose death, resignation,
removal, or disability caused the vacancy.
4.09 Meetings. Each committee shall adopt its own rules of
procedure. Each committee shall meet at whatever times it may determine by
resolution, and shall also meet whenever called together by the Board. Members
of committees may attend meetings through the medium of communications
equipment, in the same manner as members of the Board; any committee may act by
unanimous written consent instead of a meeting, in the same manner as the Board.
Written consents submitted by all of the members of a committee shall have the
same effect as a unanimous vote of the committee for all purposes.
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4.10 Notice of Meetings. If a committee establishes regular
meeting dates, it shall not be necessary to give notice of a regular meeting.
Notice of every special meeting shall be given in the manner and within the time
periods specified in these by-laws with respect to notices of special meetings
of the Board of Directors.
4.11 Quorum; Voting. Except as otherwise provided by the
certificate of incorporation, each Director shall have one vote at a meeting of
a Board committee, and the participation of the Directors with a majority of the
votes of the committee shall constitute a quorum for the transaction of
business. A quorum at any meeting of any committee shall be a majority of the
entire committee, except that if any committee consists of only one member, then
that one Director constitutes a quorum. Every act or decision by a majority of
the Directors present at a duly held committee meeting at which a quorum is
present shall be regarded as the act of the committee.
4.12 Reports. Actions taken at a meeting of any committee shall
be reported to the Board at its next meeting, except that when the meeting of
the Board is held within two days after a committee meeting, the report may be
made at the second Board meeting following the committee meeting.
4.13 Limitations on Powers. No committee of the Board shall have
authority to do any of the following:
(a) Make, alter, or repeal any by-law of the Corporation;
(b) Elect or appoint any Director, or remove any officer or
Director;
(c) Submit to the shareholders any action that requires
their approval; or
(d) Amend or repeal any resolution adopted by the Board
that by its terms is amendable or repealable only by the Board.
4.14 Powers of the Board. By resolution adopted by a majority of
the entire Board, the Board shall have the power to:
(a) Appoint one or more Directors to serve as alternate
members of any committee and to act in the absence or disability of members of
any committee with all the powers of the absent or disabled members;
(b) Abolish any committee at its pleasure; and
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(c) Remove any Director from membership on any committee at
any time, with or without cause.
ARTICLE V - OFFICERS
5.01 Election. The officers of the Corporation shall consist of a
President, a Treasurer, a Secretary, and any other officers, including without
limitation one Executive Vice President, one or more Vice Presidents, one or
more Assistant Vice Presidents, one or more Assistant Treasurers, and one or
more Assistant Secretaries, as the Board deems necessary. All officers shall be
elected by the Board of Directors. The President, Treasurer, Secretary, and any
other officers that the Board considers appropriate shall be elected at the
regular Board meeting immediately following the annual meeting of shareholders.
Any two or more offices may be held by the same person; provided, however, that
no officer shall be authorized to verify any instrument in more than one
capacity if the instrument is required by law to be executed, acknowledged, or
verified by two or more offices.
5.02 Additional Offices. The Board of Directors may from time to
time elect any other officers that it deems necessary, who shall hold their
offices for the terms and have the powers and duties prescribed by the Board.
5.03 Election and Term of Office. Each officer shall hold office
from the date elected until the next annual election of officers, and until a
successor has been elected unless the officer has previously resigned or been
removed. All officers of the Corporation shall hold office at the pleasure of
the Board of Directors.
5.04 Vacancies. Any vacancy in the offices of President,
Treasurer, and Secretary shall be filled promptly by the Board. Any vacancy in
any other office may be filled by the Board at its discretion.
5.05 Removal, Suspension and Resignation.
(a) Any officer elected by the Board may be removed by the
Board either with or without cause. Any officer elected by the shareholders may
be removed, with or without cause, only by the shareholders. However, the Board
may suspend for cause the authority of an officer appointed by the shareholders
pending shareholder action. The removal or suspension of an officer shall be
without prejudice to any contract rights that the officer may have. Election of
an officer shall not, in and of itself, create contract rights.
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(b) Any officer may resign at any time by giving written
notice to the Board or to the President. The resignation will be effective on
receipt, or at any later time specified in the resignation. Unless otherwise
specified in the resignation, its acceptance is not necessary to make it
effective.
5.06 Powers and Duties. The officers of the Corporation shall
have the responsibilities set forth in these by-laws. The officers may have
additional responsibilities as determined by the Board of Directors, the
Executive Committee (if any) and, in the case of all officers other than the
President, the President, provided that any additional responsibilities are not
inconsistent with the provisions of these by-laws. Without limiting the
foregoing, the officers shall have the following duties and responsibilities:
(a) President. The President shall be the chief executive
officer of the Corporation and, as such, shall have general supervision over the
business and affairs of the Corporation, subject to the control of the Board of
Directors. The President shall be a member ex officio of each standing committee
to which he or she is not personally appointed. Subject to the control of the
Board of Directors, the President may enter into any contract or execute and
deliver any instruments on behalf of the Corporation. The President, if the
Chairman of the Board shall be absent, shall preside at all meetings of the
shareholders and, if the President is also a Director, he shall preside, in the
absence of the Chairman of the Board, at all meetings of the Board of Directors
that he or she attends. In general, the President shall perform all duties
incident to the office of the President, and any other duties that may be
assigned by the Board of Directors.
(b) Vice President. In the order of their seniority unless
otherwise determined by the Board of Directors, the Executive Vice President (if
any) shall perform the functions of the President in the absence or disability
of the President. In addition, they shall perform all other functions prescribed
by the President or the Board of Directors.
In the order of their seniority unless otherwise determined
by the Board of Directors, the Vice Presidents (if any) shall perform the
functions of the President in the absence or disability of the President and the
Executive Vice President (if any). They shall perform all other duties and have
whatever other powers prescribed by the President or the Board of Directors.
(c) Treasurer. Unless a Vice President shall be appointed
the Chief Financial Officer of the Corporation, the Treasurer shall be the Chief
Financial Officer. He or she shall
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have charge and custody of, and be responsible for, all funds and securities of
the Corporation. The Treasurer shall deposit all funds in the name of the
Corporation in the institutions selected by the Board of Directors. The
Treasurer shall keep or cause to be kept books of account on behalf of the
Corporation and shall make these books available to any of the Directors of the
Corporation during business hours at the office of the Corporation where the
books and records are kept. In general, the Treasurer shall perform all the
duties incident to the office of the Treasurer and any other duties as may be
assigned by the President or the Board of Directors.
(d) Assistant Treasurer. Assistant Treasurers shall perform
all of the duties and responsibilities of the Treasurer whenever the Treasurer
is unavailable to perform the duties of the office, and shall perform all other
duties as may be assigned to them by the Board of Directors, the President, or
the Treasurer.
(e) Secretary. The Secretary, if present, shall act as
secretary at all meetings of the Board of Directors and of the shareholders and
shall keep the minutes of those meetings in a book or books to be provided for
that purpose. The Secretary shall cause notices of meetings to be given in
accordance with these by-laws. In general, the Secretary shall perform all the
duties incident to the office of the Secretary and any other duties as may be
assigned by the President or the Board of Directors.
(f) Assistant Secretaries. Assistant Secretaries shall
perform all of the duties and responsibilities of the Secretary whenever the
Secretary is unavailable to perform the duties of the office, and shall perform
all other duties and exercise all other powers as may be assigned to them by the
Board of Directors, the President, or the Secretary.
5.07 Delegation of Duties of Officers. The Board of
Directors may delegate the duties and powers of any officer of the Corporation
to any other officer or to any director for a specified period of time for any
reason that the Board of Directors may deem sufficient.
5.08 Bond. The Board of Directors shall have power, to the
extent permitted by law, to require any officer, agent or employee of the
Corporation to give bond for the faithful discharge of his duties in such form
and with such surety or sureties as the Board of Directors may determine.
ARTICLE VI - CAPITAL SHARES
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6.01 Issuance of Certificates for Shares. Each shareholder of the
Corporation shall be entitled to a certificate or certificates in such form as
is prescribed by law and as shall be approved by the Board of Directors,
certifying the number of capital shares of the Corporation owned by such
shareholder.
6.02 Signatures on Share Certificates. Certificates for capital
shares of the Corporation shall be signed by, or in the name of the Corporation
by, the Chairman of the Board, the President or a Vice President and by the
Secretary, the Treasurer, an Assistant Secretary or an Assistant Treasurer and
shall bear the corporate seal of the Corporation or a printed or engraved
facsimile thereof.
If any such certificates are countersigned by a transfer agent
other than the Corporation or its employee, or by a registrar other than the
Corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, such certificate may be issued by the Corporation with the same effect
as if such signer were such officer, transfer agent or registrar at the date of
issue.
6.03 Stock Ledger. A record of all certificates for capital
shares issued by the Corporation shall be kept by the Secretary or any other
officer, employee or agent designated by the Board of Directors. Such record
shall show the name and address of the person, firm or corporation in which
certificates for capital shares are registered, the number of shares represented
by each such certificate, the date of each such certificate, and in case of
certificates which have been cancelled, the date of cancellation thereof.
The Corporation shall be entitled to treat the holder of record
of capital shares as shown on the stock ledger as the owner thereof and as the
person entitled to receive dividends thereon, to vote such shares and to receive
notice of meetings, and for all other purposes. The Corporation shall not be
bound to recognize any equitable or other claim to or interest in any capital
share on the part of any other person whether or not the Corporation shall have
express or other notice thereof.
6.04 Regulations Relating to Transfer. The Board of Directors may
make such rules and regulations as it may deem expedient, not inconsistent with
law, the Certificate of Incorporation or these By-Laws, concerning issuance,
transfer and
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registration of certificates for capital shares of the Corporation. The Board of
Directors may appoint, or authorize any principal officer to appoint, one or
more transfer clerks or one or more transfer agents and one or more registrars
and may require all certificates for capital shares to bear the signature or
signatures of any of them.
6.05 Transfers. Transfer of capital shares shall be made on the
books of the Corporation only upon delivery to the Corporation or its transfer
agent of (i) a written direction of the registered holder named in the
certificate or such holder's attorney lawfully constituted in writing, (ii) the
certificate for the capital shares being transferred, and (iii) a written
assignment of the capital shares evidenced thereby.
6.06 Cancellation. Each certificate for capital shares
surrendered to the Corporation for exchange or transfer shall be cancelled and
no new certificate or certificates shall be issued in exchange for any existing
certificate (other than pursuant to Section 6.7) until such existing certificate
shall have been cancelled.
6.07 Lost, Destroyed, Stolen, and Mutilated Certificates. In the
event that any certificate for capital shares of the Corporation shall be
mutilated the Corporation shall issue a new certificate in place of such
mutilated certificate. In case any such certificate shall be lost, stolen, or
destroyed the Corporation may, in the discretion of the Board of Directors or a
committee designated thereby with power so to act, issue a new certificate for
capital shares in the place of any such lost, stolen or destroyed certificate.
The applicant for any substituted certificate or certificates shall surrender
any mutilated certificate or, in the case of any lost, stolen or destroyed
certificate, furnish satisfactory proof of such loss, theft or destruction of
such certificate and of the ownership thereof. The Board of Directors or such
committee may, in its discretion, require the owner of a lost, stolen or
destroyed certificate, or his representatives, to furnish to the Corporation a
bond with an acceptable surety or sureties and in such sum as will be sufficient
to indemnify the Corporation against any claim that may be made against it on
account of the lost, stolen or destroyed certificate or the issuance of such new
certificate. A new certificate may be issued without requiring a bond when, in
the judgment of the Board of Directors, it is proper to do so.
6.08 Fixing of Record Dates. (a) The Board of Directors may fix,
in advance, a record date, which shall not be
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more than fifty nor less than ten days before the date of any meeting of
shareholders, nor more than fifty days prior to any other action, for the
purpose of determining shareholders entitled to notice of or to vote at such
meeting of shareholders or any adjournment thereof, or to express consent or
dissent to corporate action in writing without a meeting, or to receive payment
of any dividend or other distribution or allotment of any rights, or to exercise
any rights in respect of any change, conversion or exchange of shares or for the
purpose of any other lawful action.
(b) If no record date is fixed by the Board of Directors:
(i) The record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the date next preceding the day on which notice is given,
or if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held;
(ii) The record date for determining shareholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution or consents to the action relating
thereto.
(c) A determination of shareholders of record entitled to
notice of or to vote at a meeting of shareholders shall apply to any adjournment
of the meeting; provided that the Board of Directors may fix a new record date
for the adjourned meeting.
ARTICLE VII - DIVIDENDS
Subject to the provisions of the certificate of incorporation and
to applicable law, dividends on the outstanding shares of the Corporation may be
declared in such amounts and at such time or times as the Board of Directors may
determine. Before payment of any dividend, there may be set aside out of the net
profits of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time in its absolute discretion deems proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors shall think conducive to the interests of the
Corporation, and the Board of Directors may modify or abolish any such reserve.
ARTICLE VIII - INDEMNIFICATION
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8.01 Indemnification. (a) The Corporation shall, to the full
extent permitted by applicable law, indemnify any person made, or threatened to
be made, a party to an action or proceeding (other than one by or in the right
of the Corporation to procure a judgment in its favor), whether civil or
criminal, including an action by or in the right of any other Corporation of any
type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of the
Corporation served in any capacity at the request of the Corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
Corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses,including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the Corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful. The termination of
any such civil or criminal action or proceeding by judgment, settlement,
conviction or upon a plea of nolo contendere, or its equivalent, shall not in
itself create a presumption that any such director or officer did not act, in
good faith, for a purpose which he reasonably believed to be in, or, in the case
of service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the Corporation or that he had reasonable cause to believe that his conduct was
unlawful.
(b) The Corporation shall, to the full extent permitted by
applicable law, indemnify any person made, or threatened to be made, a party to
an action by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he, his testator or intestate, is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the Corporation, except that no indemnification
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under this paragraph shall be made in respect of (1) a threatened action, or a
pending action which is settled or otherwise disposed of, or (2) any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the Corporation, unless and only to the extent that the court in which the
action was brought, or, if no action was brought, any court of competent
jurisdiction, determines upon application that, in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for such
portion of the settlement amount and expenses as the court deems proper.
Any indemnification by the Corporation pursuant hereto shall only
be made in the manner and to the extent authorized by applicable law, and any
such indemnification shall not be deemed exclusive of any other rights to which
those seeking indemnification may otherwise be entitled under the applicable
laws.
8.02 Insurance for Indemnification of Directors and Officers. The
Corporation may purchase and maintain insurance:
(a) To indemnify the Corporation for any obligation which it
incurs as a result of the indemnification of directors and officers under the
provisions of this Article VIII, and
(b) To indemnify directors and officers in instances in
which they may be indemnified by the Corporation under the provisions of this
Article VIII, and
(c) To indemnify directors and officers in instances in
which they may not otherwise be indemnified by the Corporation under the
provisions of this Article VIII, provided the contract of insurance covering
such directors and officers provides, in a manner acceptable to the
Superintendent of Insurance of the State of New York, for a retention amount and
for co-insurance.
No insurance however, may provide for any payment, other than
cost of defense, to or on behalf of any director or officer:
(a) if a judgment or other final adjudication adverse to the
insured director or officer establishes that his acts of active and deliberate
dishonesty were material to the cause of action so adjudicated, or that he
personally gained in fact a financial profit or other advantage to which he was
not
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legally entitled, or
(b) in relation to any risk the insurance of which is
prohibited under the law.
In the event that any expenses or other amounts are paid by or
for the Corporation by way of indemnification, otherwise than by court order or
action by the shareholders, the Corporation shall, not later than the next
annual meeting of shareholders unless such meeting is held within three months
from the date of such payment, and, in any event, within 15 months from the date
of such payment, mail to all shareholders of record at the time entitled to vote
for the election of directors a statement specifying the persons paid, the
amounts paid, and the nature and status at the time of such payment of the
litigation or threatened litigation.
ARTICLE IX - MISCELLANEOUS PROVISIONS
9.01 Corporate Seal. The Corporation's seal shall be inscribed
with the name of the Corporation, the year of its incorporation, and the words
"New York." The seal may be used by causing it or a facsimile to be impressed or
reproduced on a document or instrument, or affixed to a document or instrument.
9.02 Fiscal Year. Unless the Board of Directors, by resolution,
fixes a different date of commencement of the Corporation's fiscal year, the
fiscal year of the Corporation shall begin on the first day of April of each
year.
9.03 Waiver of Notice. Whenever any notice is required to be
given under any provision of law, the Certificate of Incorporation, or these
By-Laws, a written waiver thereof, signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the shareholders, directors, or members of
a committee of directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation.
Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
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9.04 Execution of Instruments, Contracts, etc. All checks,
drafts, bills of exchange, notes or other obligations or orders for the payment
of money shall be signed in the name of the Corporation by such officer or
officers or person or persons, as the Board of Directors may from time to time
designate.
Except as otherwise provided by law, the Board of Directors, any
committee given specific authority in the premises by the Board of Directors, or
any committee given authority to exercise generally the powers of the Board of
Directors during the intervals between meetings of the Board of Directors, may
authorize any officer, employee or agent, in the name of and on behalf of the
Corporation, to enter into or execute and deliver deeds, bonds, mortgages,
contracts and other obligations or instruments, and such authority may be
general or confined to specific instances.
All applications, written instruments and papers required by any
department of the United States Government or by any state, county, municipal or
other governmental authority, may be executed in the name of the Corporation by
any principal officer or subordinate officer of the Corporation, or, to the
extent designated for such purpose from time to time by the Board of Directors,
by an employee or agent of the Corporation. Such designation may contain the
power to substitute, in the discretion of the person named, one or more other
persons.
ARTICLE X - AMENDMENTS; EMERGENCY BY-LAWS
10.1 By Shareholders. These By-Laws may be altered, amended,
repealed or added to, or new By-Laws may be adopted by the affirmative vote of
the holders of not less than a majority of the outstanding shares entitled to
vote for the election of any director at an annual meeting or at a special
meeting called for that purpose, provided, however, that a written notice shall
have been sent to each shareholder of record entitled to vote at such meeting,
in conformity with the requisites of Section 2.5 hereof, which notice shall
state the alterations, amendments, additions or changes which are proposed to be
made in such By-Laws.
10.2 By Directors. To the extent permitted by the Certificate of
Incorporation, these By-Laws may be amended, added to, altered or repealed, or
new By-laws may be adopted at any regular or special meeting of the Board of
Directors by a resolution adopted by affirmative vote of a majority of the whole
Board of Directors; provided, however, that:
(a) any By-law adopted by the Board of Directors
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<PAGE>
may be altered, amended or repealed by majority vote of the shareholders
entitled to vote for the election of directors; and
(b) if any By-law regulating an impending election of
directors is adopted, amended or repealed by the Board of Directors, there shall
be set forth in the notice of the next meeting of shareholders for the election
of directors the by-law so adopted, amended or repealed, together with a concise
statement of the changes made.
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<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
PIONEER COMMERCIAL FUNDING CORP.
Under Section 805 of the Business Corporation Law
of the State of New York
Pursuant to the provisions of Section 805 of the Business
Corporation Law of the State of New York, the undersigned Elie Housman and
Glenda Klein, the President and Secretary, respectively, of Pioneer Commercial
Funding Corp. (the "Corporation"), hereby certify that:
1. The name of the Corporation is Pioneer Commercial Funding Corp.
2. The Certificate of Incorporation of the Corporation was filed by
the Secretary of State of the State of New York on March 8, 1994.
3. The Certificate of Incorporation, as heretofore amended, is
further amended in accordance with Section 805(b)(11) to (a) change the
1,089,000 issued common shares, par value $.01 per share (the "Common Shares")
to 825,000 issued Common Shares, at the rate of one for 825/1,089ths; and (b)
change the 3,911,000 unissued Common Shares to 4,175,000 Common Shares at the
rate of one for 4,175/3,911ths.
4. Paragraph FOURTH a) of the Certificate of Incorporation relating
to the total authorized shares of capital stock which the Corporation is
authorized to issue after the foregoing amendments shall remain unchanged, as
follows:
"FOURTH a) The corporation shall be authorized to issue the following
shares:
<TABLE>
<CAPTION>
Class Number of Shares Par Value
----- ---------------- ---------
<S> <C> <C>
COMMON 5,000,000 $.01"
</TABLE>
5. The foregoing amendment of the Certificate of Incorporation
herein certified was authorized by vote of the Board of Directors, and was
thereafter duly adopted by vote of a majority of the shares of Common Stock cast
in favor thereof at an annual meeting of the shareholders held on April 24, 1996
at which a quorum was present and acting throughout.
6. The changes in the capitalization of the Corporation made
pursuant hereto shall result in a decrease of stated capital from $10,890 to
$8,250.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, this Certificate has been subscribed this
30th day of May, 1996 by Elie Housman and Glenda Klein, the President and
Secretary, respectively, of the Corporation, who affirm that the statements made
herein are true under the penalties of perjury.
PIONEER COMMERCIAL FUNDING CORP.
By:_________________________________
Elie Housman, President
By:_________________________________
Glenda Klein, Secretary
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PIONEER COMMERCIAL FUNDING CORP.
NON-QUALIFIED STOCK OPTION PLAN
On August 1, 1994, the stockholders of the Company approved the
adoption of the PCF Acquisition Corp. Non-Qualified Stock Option Plan (the
"Plan"). In anticipation of the forthcoming merger of Pioneer Commercial Funding
Corp. with and into the Company (the "Merger"), Sections R and S of the Plan are
hereby modified, and the Plan, as so modified, is hereby redesignated as the
Pioneer Commercial Funding Corp. Non-Qualified Stock Option Plan, and is hereby
restated, as of November 4, 1994, as follows:
A. Purpose and Scope
The purpose of this Plan is to encourage stock ownership by
employees and directors of, and independent consultants to, Pioneer Commercial
Funding Corp., a New York corporation, and its subsidiaries (herein called the
"Company"), to provide an incentive to such persons to develop, expand and
improve the profits and prosperity of the Company, and to assist the Company in
attracting key personnel and consultants through the grant of Options to
purchase shares of the Company's Common Stock.
B. Definitions
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Compensation Committee, which is
appointed by the Board, and which shall be composed of at least two members of
the Board each of whom shall be Disinterested Persons.
3. "Company" shall mean Pioneer Commercial Funding Corp. and its
subsidiaries.
4. "Commission" shall mean the US Securities and Exchange
Commission.
5. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
6. "Disinterested Person" shall mean a director who satisfies the
conditions for qualification as a disinterested person set forth in Rule
16b-3(c)(2)(i) promulgated by the Commission under the Exchange Act.
<PAGE>
<PAGE>
7. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
8. "Independent Director" shall mean a director who is not an
employee of the Company.
9. "Option" shall mean a right to purchase Stock, granted
pursuant to the Plan.
10. "Option Price" shall mean the purchase price for Stock under
an Option, as determined in Section F below.
11. "Participant" shall mean an employee of the Company, a
director of the Company, a consultant to the Company, or any person to whom an
Option is granted under the Plan.
12. "Plan" shall mean this Pioneer Commercial Funding Corp.
Non-Qualified Stock Option Plan, as amended and/or modified from time to time
hereafter.
13. "Securities Act" shall mean the Securities Act of 1933, as
amended.
14. "Stock" shall mean the Common Stock of the Company, par value
$.01.
C. Stock to be Optioned
Subject to the provisions of Section L of the Plan, the maximum
number of shares of Stock that may be optioned or sold under the Plan is 151,515
shares. Such shares may be treasury, or authorized but unissued shares of, the
Stock of the Company. In the event that any Options granted under the Plan shall
terminate, expire or be surrendered to the Corporation for any reason without
having been exercised in full, the shares represented thereby shall thereafter
again be available for other awards under the Plan.
D. Administration
The Plan shall be administered by the Committee. Two members of
the Committee shall constitute a quorum for the transaction of business. Subject
to the express provisions and limitations of the Plan, and except as provided in
Section R hereof, the Committee shall have full and final authority in its
discretion to determine the individuals to whom awards shall be made, the time
or times when they shall receive them, the exercise price of each Option, the
period during which
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<PAGE>
and the terms and conditions under which each Option may be exercised, the
number of shares to be subject to each Option, and all other terms and
conditions relating to awards made under this Plan.
Subject to the express provisions and limitations of the Plan,
and except as provided in Section R hereof, the Committee shall also have full
and final authority to interpret and implement the Plan and the respective
Options issued pursuant to the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions not
specified in or incorporated within the Plan to be included in the respective
awards (which need not be uniform) and to make all other determinations
necessary or advisable for administering the Plan.
The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any award in the manner and to the
extent appropriate, and it shall be the sole and final judge in such
circumstances. All actions or determinations of the Committee shall be by
majority vote of its members and the determination of the Committee on the
matters referred to in this Section shall be conclusive. The Committee shall
report any action taken by it to the meeting of the Board of Directors next
following such action.
No member of the Committee shall be liable for any action or
determination made by him in good faith.
E. Eligibility
The Committee may grant Options to any employee (including an
employee who is a director or an officer), or any non-employee who is a director
or an officer, or any non-employee director of the Company, or any consultant to
the Company. Options may be awarded by the Committee at any time and from time
to time to new Participants, or to then current Participants, or to a greater or
lesser number of Participants, and may include or exclude previous Participants,
as the Committee shall determine. Options granted at different times need not
contain similar provisions.
No person shall have any right to participate in the Plan unless
selected by the Committee and then only to the extent determined by the
Committee. In selecting the employees who may become Participants in the Plan,
as well as in determining the amount, type and terms and conditions of each
award made under the Plan, the Committee shall weigh such factors as it shall
deem relevant to accomplish the purposes of the Plan, and all actions taken and
determinations made by the Committee, in its sole discretion, shall be final and
binding and not subject to review.
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<PAGE>
A Participant to whom an award has been made under the Plan may
receive one or more additional awards if the Committee shall so determine. No
person shall be eligible to receive any award if, at the time such award is
made, such person owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company.
F. Option Price
The purchase price for Stock issuable upon exercise of each
Option shall be at least 100 percent of the fair market value of the Stock on
the date when the Option is granted (the "Grant Date"), but in no event less
than the par value of the Stock. The fair market value of the Company's Stock
shall be determined as follows:
1. If the Stock is traded on the either the Small-Cap Market or
National Market System maintained by the National Association of Securities
Dealers, Inc. ("NASD"), or is traded on a national securities exchange, the fair
market value of the Stock shall be the closing sale price on the Grant Date as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or the national securities exchange on which the Stock is
trading, as the case may be; or
2. If the Stock ceases to be traded on a national securities
exchange, but trading in the Stock continues to be reported on NASDAQ, the fair
market value of the Stock shall be the closing bid price on the Grant Date as
reported by NASDAQ; or
3. If the Stock is not traded on a national securities exchange,
and trading in the Stock is not reported on NASDAQ, the fair market value shall
be determined by a reputable investment banking firm retained by the Board.
G. Terms and Conditions of Options
Except as provided in Section R hereof, Options granted pursuant
to the Plan shall be authorized by the Committee and shall be evidenced by
agreements which need not be uniform ("Option Agreements") in such form as the
Committee, shall from time to time approve. Such Agreements shall comply with
and be subject to the following terms and conditions:
1. Employment Agreement - The Committee may, in its discretion,
include in any Option granted under the Plan to a Participant who is an employee
of the Company a condition that the Participant shall agree to remain in the
employ of, and/or to render services to, the Company for a period of time
(specified in the Option Agreement) following the date the Option is granted. No
such agreement
4
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shall impose upon the Company, however, any obligation to employ the Participant
for any period of time, except as otherwise agreed to by the Company.
2. Time and Method of Payment - The Option Price shall be paid in
full in cash, by certified check or official bank check, at the time an Option
is exercised under the Plan. If the Committee in its sole discretion so
authorizes, payment may be made by exchange of shares of the Company's Common
Stock previously owned by the optionee, having the same fair market value as
determined in the manner set forth in Section F. Without payment by one of the
methods described above, an exercise of any Option granted under the Plan shall
be invalid and of no effect. Promptly after the exercise of an Option and the
payment of the full Option Price, the Participant shall be entitled to the
issuance of a stock certificate evidencing his or her ownership of the Stock
issuable under such Option. A Participant shall have none of the rights of the
stockholder until the Option is duly exercised, and no adjustment will be made
for dividends or other rights for which the record date is prior to the date
such Option is duly exercised.
3. Number of Shares - Each Option shall state the total number of
shares of Stock to which it pertains.
4. Option Period and Limitations on Exercise of Options - Except
for Options granted pursuant to Section R hereof, the Committee shall determine
the period of time during which an Option may be exercised, provided, however,
that no Option may be exercised after the expiration of ten years from the date
it is granted. Except for Options granted pursuant to Section R hereof, the
Committee may, in its discretion, provide that an Option may not be exercised in
whole or in part for any period or periods of time specified in the Option
Agreement; provided, however, that no Option granted to an officer of the
Company may be exercisable for a minimum of six months from the Grant Date.
Options granted pursuant to Section R hereof will be exercisable in accordance
with Section S hereof. Except as provided in the Option Agreement and in this
Section G(4), an Option may be exercised in whole or in part at any time during
its term. No Option may be exercised for a fractional share of Stock.
5. Securities Act Protective Provisions - Options may also
include provisions (which need not be uniform) designed to prevent violations of
the Securities Act and the rules and regulations thereunder upon the exercise of
an option or the sale or other disposition of the shares of Common Stock
purchased on exercise of an option.
H. Termination of Employment
Except as provided in Section I below, if an employee who is a
Participant ceases to be employed by the Company, his or her Options unless
5
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<PAGE>
otherwise exercised, shall terminate as of the close of business on the 30th day
following the termination of the Participant's employment with the Company, as
long as such termination shall not be effected (i) by the Company (or the
affected subsidiary) for cause, or (ii) by reason of the death of the employee;
provided, however, that such Participant may exercise his or her Options during
such 30 day period following such termination of employment only to the extent
that he or she would otherwise be entitled to exercise such Options during such
period; provided, further, however, that in no event shall any Option be
exercisable more than ten (10) years from the date it was granted.
Notwithstanding the foregoing, the Committee may cancel an Option during the 30
day period referred to in this section, if the Participant engages in employment
or activities contrary, in the opinion of the Committee, to the best interest of
the Company. The Committee shall determine in each case whether a termination of
employment shall be considered a retirement with the consent of the Company,
and, subject to applicable law, whether a leave of absence shall constitute a
termination of employment. Any such determination of the Committee shall be
final and conclusive. The foregoing provisions may be modified or waived by the
Committee and do not, in any case, apply to any Participant who is not an
employee of the Company. Except for Options granted pursuant to Section R
hereof, the Committee will determine what, if any, provisions for earlier
termination of the Option will be included in the Option Agreement issued to any
non-employee. The Committee will determine who shall be deemed to be an employee
of the Company for the purposes of this Section H and Section I below at the
time the Option is granted.
I. Rights in Event of Death
If an employee who is a Participant dies while employed by the
Company, or within three months after having retired with the consent of the
Company, and without having fully exercised his or her Options, the Option
theretofore granted to him or her may be exercised at any time prior to the
first anniversary of such employee's death or the expiration date of the Option,
whichever shall first occur, by the person or persons to whom such employee's
rights under the Option shall pass by will or the laws of descent and
distribution, but only to the extent that he or she was entitled to exercise the
Option at the date of his or her death. The foregoing provisions may be modified
or waived by the Committee and do not, in any case, apply to any Participant who
is not an employee of the Company. Except for Options granted pursuant to
Section R hereof, the Committee will determine what, if any, provisions
concerning exercise of the Option upon the death of the holder will be included
in the Option Agreement issued to any non-employee.
J. No Obligations to Exercise Option
6
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The granting of an Option shall impose no obligation upon the
Participant to exercise such Option.
K. Non-assignability
Options shall not be transferable other than by will or by the
laws of descent and distribution, and during a Participant's lifetime an Option
shall be exercisable only by such Participant.
L. Effect of Chance in Stock Subject to the Plan
The aggregate number of shares of Stock available for Options
under the Plan, the shares subject to any Option, and the price per share, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Stock subsequent to the effective date of the Plan resulting
from (1) a subdivision or consolidation of shares or any other capital
adjustment, (2) the payment of a stock dividend on the Company's Common Stock,
or (3) other increase or decrease in such shares effected without receipt of
consideration by the Company. If the Company shall be the surviving corporation
in any merger or consolidation, any Option shall pertain, apply, and relate to
the securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled after the merger or consolidation. Upon
dissolution or liquidation of the Company, or upon a merger or consolidation in
which the Company is not the surviving corporation, all Options outstanding
under the Plan shall terminate; provided, however, that each Participant (and
each other person entitled under Section I to exercise an Option) shall have the
right, immediately prior to such dissolution or liquidation, or such merger or
consolidation, to exercise such Participant's Options in whole or in part,
notwithstanding any provisions contained in the Plan or the Option Agreement to
the contrary.
M. Amendment and Termination
Unless the Plan theretofore shall have been terminated as
hereinafter provided, the Plan shall terminate on the tenth anniversary of the
date of initial adoption of the Plan by the Company's shareholders, and no
awards shall be made thereafter. The Committee at any time prior to that date
may terminate the Plan, or make such changes in it and additions or amendments
to it as the Committee shall deem advisable; provided, however, that except as
provided in Section L hereof, any change in or addition or amendment to the Plan
which shall
(a) materially increase the benefits accruing to participants
under the Plan;
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(b) materially increase the number of shares of Common Stock
which may be issued under the Plan; or
(c) materially modify the requirements as to eligibility for
participation under the Plan,
shall be subject to approval by the shareholders of the Company within 12 months
after its adoption or the same shall become null and void.
No termination or amendment of the Plan may, without the consent
of the holder of any Option adversely affect the rights of such holder.
N. Agreement and Representation of Participants
Upon the exercise of an Option at a time when there is not in effect a
registration statement under the Securities Act relating to the Stock issuable
upon exercise of the Option, the optionee shall provide the Company with such
representations and warranties as may be required by the Company to the effect
that the shares to be purchased pursuant to the Option are being acquired for
investment and not with a view to the distribution thereof. Without limiting the
Company's obligations with respect to outstanding Options, no Stock shall be
purchased upon the exercise of any Option unless all applicable requirements of
the Commission, and any other regulatory agencies having jurisdiction over the
Company and of any stock exchanges upon which the Stock may be listed have been
fully complied with. The Company shall use its best efforts to comply with all
such regulations and appropriate provision may be made in the instruments
evidencing Options to provide for suitable adjustments in the event that the
Company is unable to comply with such regulations.
O. Legend: Deposit of Certificates
Until such time as the Stock issuable upon exercise of the
Options granted under this Plan has been registered under the Securities Act,
each certificate evidencing ownership of Stock issued upon exercise of an Option
awarded under the Plan shall be registered in the name of the Participant and
deposited by the Participant, together with a stock power endorsed in blank,
with the Company, and shall bear the following or similar legend, and any other
legend required by law:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions contained in
the Pioneer Commercial Funding Corp. Non-Qualified Stock Option Plan and
an agreement between the registered owner and PCF Acquisition Corp.
Copies of such plan and agreement are on file in the offices of the
Secretary of Pioneer Commercial Funding Corp."
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Upon registration of such Stock under the Securities Act, the Company shall
re-deliver to the Participant (or to his or her heir, designated beneficiary or
legal representative) the certificate(s) and stock power(s) so deposited with
it.
P. Reservation of Shares of Stock
The Company, during the term of this Plan, will at all times
reserve and keep available, and will seek or obtain from any regulatory body
having jurisdiction any requisite authority necessary to issue and to sell, the
number of shares of Stock that shall be sufficient to satisfy the requirements
of this Plan. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority deemed necessary by counsel for the Company
for the lawful issuance and sale of its Stock hereunder shall relieve the
Company of any liability in respect of the failure to issue or sell Stock as to
which the requisite authority has not been obtained.
Q. Effective Date of Plan
The Plan shall be effective as of the date when it shall be
adopted by the Company's stockholders, or on the effective date of the Merger,
whichever shall last occur.
R. Grant of Options to Independent Directors
1. On each of January 2, 1997, January 2, 2000 and January 2,
2003, each Independent Director shall automatically receive an Option to
purchase 15,000 shares of Stock (the "Regular Independent Director Grant").
Notwithstanding the foregoing, should the date on which a Regular Independent
Director Grant is scheduled to be awarded pursuant to the preceding sentence
fall on a Saturday, Sunday or holiday, the Regular Independent Director Grant
shall be awarded on the first business day immediately following such scheduled
date.
2. On the date of each Independent Director's initial election to
the Board, pursuant to a vote of the Company's stockholders or the Board or, if
such initial election shall have occurred prior to the date of adoption of the
Plan, then on said date of adoption, such newly-elected Independent Director
shall automatically receive an Option to purchase a pro rata share of the shares
of Stock underlying an Option granted pursuant to a Regular Independent Director
Grant, which shall be equal to the product of 315.65 multiplied by the number of
whole months remaining in the relevant three year period until the next Regular
Independent Director Grant (the "Pro Rata Independent Director Grant").
S. Exercise Period of Options Granted to Independent Directors
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Subject to the last paragraph of this Section S. each Option
granted pursuant to the Plan shall vest and become exercisable as follows:
1. Those Options granted pursuant to a Regular Independent
Director Grant shall vest and become exercisable as to 5,000 shares on the first
anniversary of the Grant Date; as to 5,000 shares on the second anniversary of
the Grant Date; and as to the remaining 5,000 shares on the third anniversary of
the Grant Date.
2. Those Options granted pursuant to a Pro Rata Independent
Director Grant shall vest and become exercisable as to that number of shares
equal to the product of 315.65 multiplied by the number of whole months
remaining in the first calendar year in which the Independent Director is
elected initially to the Board on the January 1st following such Independent
Director's initial election to the Board; and as to any remaining shares in
accordance with the schedule for Options granted pursuant to a Regular
Independent Director Grant as provided in Section S(1) hereof.
Notwithstanding the foregoing, an Option shall not vest and
become exercisable as to the relevant shares unless such Independent Director
has served continuously on the Board during the year preceding the date on which
such Options are scheduled to vest and become exercisable, or from the date such
Independent Director joined the board should such Independent Director have
joined the board during such preceding year; provided, however, that if an
Independent Director does not fulfill such continuous service requirement due to
such Independent Director's death or disability, all Options granted to such
Independent Director pursuant to Section R hereof shall nonetheless vest and
become exercisable as provided in this Section S. For purposes of this Section S
"disability" shall mean a physical or mental condition which prevents an
Independent Director from performing his duties as an Independent Director of
the Company for a continuous six month period or for a total of six months
during an 18 month period. Any Option which does not vest and become exercisable
in accordance with this Section S shall terminate and be of no further force or
effect. Subject to the provisions of Section L, no Option granted pursuant to
this Section S shall remain exercisable for a period of more than ten years from
the Grant Date.
T. Withholding
The Company or any subsidiary shall have the right to deduct from
all salary or other compensatory payments made to a Participant any taxes
required to be withheld under the applicable laws or regulations of any
governmental authority, whether Federal, state or local and whether domestic or
foreign with respect to (i) any Option granted; or (ii) any shares of Stock
issued upon exercise of
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Options granted, pursuant to the Plan. The person receiving such Option or
shares shall be required to pay to the Company or such subsidiary the amount of
any such taxes which the Company or such subsidiary is required to withhold with
respect to such transaction.
U. Cancellation and New Grant of Options
The Committee shall have the authority to effect, at any time, and from time to
time, with the consent of the affected holders, and pursuant to such terms or
conditions as the Committee shall deem appropriate, the cancellation of any or
all outstanding Options under the Plan and the grant in substitution therefor of
new Options under the Plan covering the same or different numbers of shares of
Stock having an option exercise price per share which may be lower or higher
than the exercise price per share of the cancelled Options.
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[FRONT]
[LOGO]
PC
PIONEER COMMERCIAL FUNDING CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
COMMON STOCK CUSIP 723640 10 8
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE OF PIONEER
COMMERCIAL FUNDING CORP., transferable on the books of the Corporation by the
holder hereof in person or by duly authorized ATTORNEY UPON SURRENDER OF THIS
CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS
COUNTERSIGNED BY THE TRANSFER AGENT. WITNESS THE FACSIMILE SEAL OF THE
CORPORATION AND THE FASIMILE SIGNATURES OR ITS AUTHORIZED OFFICERS.
DATED:
SECRETARY CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
[CORPORATE SEAL]
<PAGE>
<PAGE>
[BACK]
PIONEER COMMERCIAL FUNDING CORP.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS TO STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - .................Custodian...................
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Transfer to Minors
JT TEN - as joint tenants with right Act ..........................................
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list.
For Value Received, ............................ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
.......................................................................................
Please print or typewrite name and address including postal zip code of assignee
.......................................................................................
.......................................................................................
.......................................................................................Shares
of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
.......................................................................................
.......................................................................................
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated:......................................
..........................................
</TABLE>
<PAGE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
COMMON STOCK PURCHASE OPTION
Option (the "Option") dated as of the day of , 1996, from Pioneer
Commercial Funding Corp., a New York corporation (the "Company"), to (the
"Holder"), or her assigns (who, upon recordation of the transfer of ownership of
this Option on the records of the Company maintained for such purpose, shall be
deemed to be the "Holder" or the "Holders").
WHEREAS, pursuant to a certain agreement of even date herewith
between the Company and the Holder (the "Agreement"), the Company desires to
afford the Holder an opportunity to purchase shares of the Company's $.01 par
value common stock (the "Common Stock"), subject to the terms and conditions set
forth herein.
NOW, THEREFORE, for good and valuable consideration, the Company
hereby agrees as follows:
1. Grant of Option. The Company hereby grants to the Holder the
right and option to purchase up to an aggregate of shares of Common Stock (the
"Option Shares"), subject to adjustment as provided for herein.
2. Purchase Price. The purchase price of the shares of Common
Stock covered by this Option shall be $ per share (the "Initial Exercise
Price"), subject to adjustment (such price as so adjusted from time to time
referred to herein as the "Purchase Price") as provided for herein.
3. Term of Option; Transferability. The term of this Option shall
be for a period of years commencing on the date first above written (the
"Exercise Period"). Subject to the conditions and limitations set forth in
Section 9 hereof, the Holder shall be entitled to sell, assign or otherwise
transfer ownership of this Option at any time during, but not after, the
Exercise Period.
4. Reservation of Shares. At all times during the Exercise Period
there shall be reserved for issuance and/or delivery upon exercise of this
Option such number of shares of Common Stock as shall be required for issuance
and delivery in connection therewith.
5. Exercise of Option. This Option may be exercised in whole at
any time during the Exercise Period or in part from time to time during such
period by executing and delivering a notice of exercise in the form attached
hereto as Exhibit
<PAGE>
<PAGE>
A. Such notice shall be accompanied by payment of the full purchase price of
such shares by certified or bank check payable to the order of the Company.
6. Exchange, Transfer, Assignment or Loss of Option. This Option
is exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company for other options (collectively, the
"Options") of different denominations entitling the Holder thereof to purchase
in the aggregate, upon the same terms, and subject to the same conditions set
forth, in this Option, the same number of shares of Common Stock purchasable
hereunder. Subject to the provisions of Section 9 of this Option, upon surrender
of this Option to the Company with the Assignment Form (annexed hereto as
Exhibit B) duly executed, the Company, at its sole expense, shall execute and
deliver a new Option in the name of the assignee named in such instrument of
assignment and this Option shall promptly be cancelled. This Option may be
divided or combined with other Options upon presentation hereof and thereof at
the office of the Company together with a written notice specifying the names
and denominations in which new Options are to be issued and signed by the Holder
hereof. The term "Option" as used herein includes any Option into which this
Option may be divided or exchanged. Upon receipt by the Company of an affidavit
executed by the Holder attesting to the loss, theft, destruction or mutilation
of this Option, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Option, if mutilated, the Company will execute and deliver a new Option of like
tenor and date.
7. Rights before Issuance and Delivery of Shares. No Holder shall
be entitled to the privileges of stock ownership in respect of any shares issued
upon exercise of this Option, unless and until such shares of Common Stock have
been issued to such Holder as fully paid and non-assessable shares.
8. Conditions Upon Issuance of Option Shares; Registration
Rights.
(a) Unregistered Shares. Neither this Option nor the Common
Stock issuable upon exercise of this Option has been registered pursuant to a
registration statement (a "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"). Until such time as a Registration
Statement pertaining to the Option Shares shall be declared effective by the
Securities and Exchange Commission (the "Commission"), the Company shall not be
required to issue any certificate for shares of Common Stock purchased upon the
exercise of this Option unless, in connection with such exercise:
(i) The Holder makes and delivers the following
representations to the Company in writing:
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a) The Holder is purchasing the Option Shares solely
for her own account.
1) The Holder is an "accredited investor" (as that
term is defined in rule 501 of Regulation D under the Act). The Holder
acknowledges that it has been given, or the person who exercises full investment
discretion to act on the Holder's behalf has been given, the opportunity to ask
questions and receive satisfactory answers concerning the purchase of Option
Shares upon exercise of this Option, the operations and financial condition of
the Company, and the accuracy of the information provided by the Company to the
Holder or the person who exercises full investment discretion to act in the
Holder's behalf.
2) The Holder has no intention of distributing or
reselling the Option Shares or any part thereof, or interest therein, in any
transaction which would be in violation of the securities laws of the United
States of America or any state securities laws, without prejudice, however, to
the Holder's right at all times to sell or otherwise dispose of all or any part
of the Option Shares pursuant to the above-mentioned registration thereof under
the Securities Act and, if applicable, qualification under such state securities
laws or under an exemption from such registration available under the Securities
Act.
3) If the Holder desires to sell or otherwise
dispose of all or any part of the Option Shares (other than pursuant to an
effective Registration Statement under the Securities Act or a sale or other
disposition made pursuant to the Commission's Rule 144), if requested by the
Company, the Holder will deliver to the Company, an opinion of counsel,
reasonably satisfactory in form and substance to the Company and its counsel,
that such exemption is available.
(ii) Upon original issuance thereof, and until such time
as the same is no longer required under the applicable requirements of the
Securities Act, the certificates evidencing the Holder's ownership of the Option
Shares (and all certificates for securities issued in exchange therefor or
substitution thereof) shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR
SUCH LAWS."
(b) Piggyback Registration. If, at any time during the period
of five years commencing on the date hereof, the Company proposes to register
any of
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<PAGE>
its shares of capital stock under the Securities Act (other than in connection
with an initial public offering or other offering in which the underwriter
thereof objects to the registration of option shares, a merger or pursuant to
Form S-8) it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such Registration Statement, to the Holder of
her intention to do so. If the Holder or, if there shall be more than one
Holder, if the Holders holding a majority (as such term is defined in Section
8(f) hereof) of the Option Shares then issued and outstanding, notify the
Company within twenty (20) days after receipt of any such notice of her or their
desire to include any of the Option Shares in such proposed Registration
Statement, the Company shall afford to each of such Holders the opportunity to
have any such Option Shares registered under such Registration Statement.
Notwithstanding the provisions of this Section 8(b), the Company
shall have the right at any time after it shall have given written notice
pursuant this Section (irrespective of whether a written request for inclusion
of any Option Shares shall have been made) to elect not to file any such
proposed Registration Statement, or to withdraw the same after the filing but
prior to the effective date thereof.
(c) Covenants of the Company with Respect to Registration. In
connection with any registration of Option Shares under Section 8(b) hereof, the
Company covenants and agrees as follows:
(i) The Company shall use its best efforts to file a
Registration Statement within sixty (60) days of receipt of any demand therefor,
shall use its best efforts to have any Registration Statement declared effective
at the earliest possible time, shall file such post-effective amendments thereto
as may be necessary to maintain such effectiveness for a period of not less than
nine months and shall furnish each Holder desiring to sell Option Shares, such
number of prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding fees and
expenses of Holder(s) counsel and any underwriting or selling commissions), fees
and expenses in connection with all Registration Statements filed pursuant to
Section 8(b) hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, and blue sky fees and expenses.
(iii) The Company will take all necessary action which
may be required in qualifying or registering the Option Shares included in a
Registration Statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
4
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<PAGE>
(iv) In the event that the Company becomes aware of any
untrue statement of a material fact, or of an omission to state a material fact
that is required to be stated therein or that is necessary to make the
statements contained therein not misleading in the light of the circumstances
then existing, the Company will thereupon give notice to the Holder(s) of the
Option Shares of such mistatement or omission. The Company also shall indemnify
the Holder(s) of the Option Shares to be sold pursuant to any Registration
Statement and each person, if any, who controls such Holder(s) within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Securities Act, the Exchange Act or
otherwise, arising from such Registration Statement.
(d) The Company's obligations to file a Registration
Statement pursuant to Section 8(b) hereof with respect to any of the Option
Shares are expressly conditioned, in each instance, upon the Company's receipt
from the Holder(s) of the Option Shares to be offered for sale pursuant to such
Registration Statement, severally, and not jointly, of written agreements to
indemnify the Company, its officers and directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Securities Act, the Exchange Act or otherwise, arising from
information furnished in writing by or on behalf of such Holders for specific
inclusion in such Registration Statement.
(e) The Company shall as soon as practicable after the
effective date of such Registration Statement, and in any event within 15 months
thereafter, issue an earnings statement (which need not be audited) complying
with Section 11(a) of the Securities Act and covering a period of at least 12
consecutive months beginning after the effective date of the Registration
Statement.
(f) For purposes of this Agreement, the term "majority" in
reference to the Holder or Holders of this Option and the Option Shares
purchasable hereunder, shall mean any combination of issued and outstanding
Option Shares and rights to purchase Option Shares which if exercised, would at
the time in question equal or exceed 10,001 Option Shares.
9. Transfer to Comply with the Securities Act. Neither this
Option nor the Option Shares issuable upon exercise of this Option may be sold,
assigned, transferred or otherwise disposed of except as follows:
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<PAGE>
(a) To a person who, in the opinion of counsel for the
Company, is a person to whom this Option or Option Shares may legally be
transferred without registration and without the delivery of a current
prospectus under the Securities Act with respect thereto, and then only against
receipt of an agreement of such person setting forth the representations
specified in Section 8(a) hereof, and such person's agreement to comply with the
provisions of this Section 9 with respect to any resale or other disposition of
such securities which agreement shall be reasonably satisfactory in form and
substance to the Company and its counsel; or
(b) to any person upon delivery of a prospectus then meeting
the requirements of the Securities Act relating to such securities and the
offering thereof for such sale or disposition.
10. Adjustment of Purchase Price. The Purchase Price shall be
subject to adjustment from time to time during the Exercise Period as follows:
(a) If (and on each occasion that) the Company shall, at any
time during the Exercise Period, issue or sell Additional Stock (as that term is
defined in Section 10(b)(i) hereof) either without consideration or for a
consideration per share less than the Purchase Price in effect immediately prior
to the issue or sale of such Additional Stock, then, and in any such event, the
Purchase Price in effect immediately prior to such issue or sale shall be
reduced, as of the opening of business on the date of such issue or sale, to a
price determined by multiplying such Purchase Price in effect immediately prior
to such issue or sale, by a fraction: (i) the numerator of which shall be equal
to the sum of (A) the total number of shares of Common Stock issued and
outstanding at the close of business on the day next preceding the date of such
issue or sale, plus (B) the total number of shares of Common Stock which could
be purchased at the aforesaid Purchase Price with the aggregate amount of the
consideration (if any) received by the Company (or, without duplication, deemed
to be received as provided in Sections 10(b)(iii) and 10(b)(iv) hereof) upon
such issue or sale; and (ii) the denominator of which shall be equal to the
total number of shares of Common Stock issued and outstanding at the close of
business on the date of such issue or sale (including any such shares deemed to
have been issued or sold as provided in Sections 10(b)(iii) and 10(b)(iv)
hereof).
(b) For the purposes of this Section 10 the following
provisions shall also be applicable:
(i) The term Additional Stock shall mean any Common Stock
issued or sold, or deemed to have been issued or sold pursuant to Section
10(b)(iii) or Section 10(b)(iv) hereof, by the Company during the Exercise
Period, other than Common Stock issued upon the exercise of this Option or upon
exercise of any of the other Options, or upon the exercise of such other options
as
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<PAGE>
may be issued by the Company to the Initial Holder, (in each case) in whole or
in part.
(ii) In determining the number of shares of Common Stock
outstanding at any time, shares of Common Stock owned by the Company shall not
be deemed to be outstanding.
(iii) In case the Company, at any time during the
Exercise Period, shall issue or sell any rights to subscribe for or to purchase,
or grant any options for the purchase of, shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock
("Convertible Securities"), whether or not such rights or options or the right
to convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share at which shares of Common Stock are
issuable upon the exercise of such rights or options or upon conversion or
exchange of such Convertible Securities, determined by dividing:
1) the total amount, if any, received or receivable
by the Company as consideration for the issuance of such rights or the
granting of such options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of
such rights or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue of such Convertible Securities and upon
the conversion or exchange thereof; by
2) the maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon the
conversion or exchange of the maximum number of such Convertible
Securities issuable on the exercise of such rights or options;
shall be less than the Purchase Price in effect immediately prior to the issue
of such rights or the grant of such options, then the maximum number of shares
of Common Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of the maximum number of such Convertible Securities
issuable upon the exercise of such rights or options shall be deemed to be
issued or sold for such price per share; provided, however, that upon the
expiration of such rights or options, and, in the case of options to purchase
Convertible Securities, upon the expiration of the right to convert or exchange
such Convertible Securities, the currently applicable Purchase Price in effect
immediately prior to such expiration shall forthwith be adjusted to such
Purchase Price as would have obtained had the adjustments made upon the issuance
of such rights or the granting of such options been made upon the basis of the
issuance of only the number of shares of Common Stock actually issued on the
exercise of such rights or options or on the conversion
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or exchange of such Convertible Securities (or in the case of rights or options
to purchase Convertible Securities, actually issued and at the time still
issuable upon the conversion or exchange of the Convertible Securities actually
issued), and upon the basis of only the consideration applicable thereto, and
any shares issuable upon the exercise of such rights or options which have
expired or upon the conversion or exchange of such Convertible Securities, the
right to convert or exchange which has expired, shall not thereafter be deemed
to be outstanding and the consideration applicable thereto shall not thereafter
be deemed to have been received. If the said rights or options are issued or
granted in conjunction with the sale of other securities of the Company, the
part of the consideration allocable to the said rights and options, and the part
of the consideration allocable to the said other securities, shall be determined
in good faith by the Board of Directors of the Company.
(iv) In case the Company, at any time during the Exercise
Period, shall issue or sell any Convertible Securities, whether or not the
rights to convert or exchange are immediately exercisable, and the price per
share at which shares of Common Stock are deliverable upon such conversion or
exchange, determined by dividing:
1) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration (if any) payable to the Company upon such conversion or
exchange; by
2) the maximum number of shares of Common Stock
issuable as of the date of issue of such Convertible Securities to
effect the conversion or exchange of all such Convertible Securities;
shall be less than the Purchase Price in effect immediately prior to the time of
such issue or sale, then such issue or sale shall be deemed to be an issue or
sale (as of the date of issue or sale of such Convertible Securities) of the
maximum number of shares of Common Stock necessary to be issued as of that date
to effect the conversion or exchange of all such Convertible Securities, and the
gross amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration (if any) payable to the Company upon such conversion
or exchange, shall be deemed to be the consideration actually received (as of
the date of the issue or sale of such Convertible Securities) for the issue or
sale of such Common Stock; provided, however, that upon the termination of the
right to convert or to exchange such Convertible Securities for Common Stock,
the Purchase Price shall forthwith be adjusted to such Purchase Price which
would have obtained had the adjustments made upon the issuance of such
Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock actually issued upon
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the conversion or exchange thereof, and upon the basis of the consideration
applicable only to the Convertible Securities so converted or exchanged, and no
shares issuable upon the conversion or exchange of such Convertible Securities
which were not actually so issued shall thereafter be deemed to be outstanding
and the consideration applicable thereto shall not thereafter be deemed to have
been received. No adjustment of the Purchase Price shall be made pursuant to the
provisions of this Section 10(b)(iv) upon any issue or sale of Convertible
Securities if such issue or sale has been made upon the exercise of any rights
to subscribe for or to purchase, or any options to purchase, any such
Convertible Securities for which an adjustment of the Purchase Price has been
made pursuant to Section 10(b)(iii) hereof.
(v) If the amount of consideration payable to the Company
upon the exercise of any right or option to which Section 10(b)(iii) hereof is
applicable or upon the conversion or exchange of any Convertible Securities
referred to in Sections 10(b)(iii) or 10(b)(iv) hereof shall change at any time
(other than under or by reason of provisions designed to protect against
dilution), then, forthwith upon each such change becoming effective, all such
rights or options or all such rights of conversion or exchange not theretofore
exercised shall be deemed to have expired or terminated, as the case may be, and
the Purchase Price shall forthwith be adjusted in accordance with the proviso
contained in Section 10(b)(iii) or Section 10(b)(iv) hereof, as the case may be,
and further adjusted as though such rights or options or Convertible Securities
deemed expired or terminated were newly issued and convertible or exercisable
upon the payment of such changed consideration.
(vi) If the consideration payable to the Company upon the
exercise of any right or option to which Section 10(b)(iii) hereof is applicable
or upon the conversion or exchange of any Convertible Securities referred to in
Section 10(b)(iii) or 10(b)(iv) hereof shall decrease at any time under or by
reason of provisions with respect thereto designed to protect the Holders
thereof against dilution, the Purchase Price which would apply if purchase
rights hereunder were being exercised immediately after such event shall
forthwith be decreased to the Purchase Price that would have obtained had the
adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of 1) the issuance of (and the total
consideration received for) the shares of Common Stock theretofore delivered
upon the exercise of such rights or options or upon the conversion or exchange
of such Convertible Securities, and 2) the issuance of (and the total minimum
consideration thereafter receivable for) the maximum number of shares of Common
Stock thereafter deliverable upon the exercise of such rights or options or upon
the conversion or exchange of such Convertible Securities.
(vii) In case any dividends on any class of stock (other
than Common Stock) of the Company, payable in Common Stock or Convertible
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Securities, shall be declared or paid by the Company, the Common Stock, or such
Convertible Securities, as the case may be, so issued, shall be deemed to have
been issued without consideration.
(viii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for cash, the consideration
received by the Company therefor shall be deemed to be the amount received by
the Company therefor, before deducting therefrom all underwriting commissions,
discounts or concessions and all finder's fees paid or allowed by the Company in
connection therewith.
(ix) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for a consideration other than
cash, then, in any such event, the amount of the consideration (other than cash)
received by the Company shall be deemed to be the fair value of such
consideration, as determined in good faith by the Board of Directors of the
Company, before deducting all underwriting commissions, discounts or concessions
and all finder's fees paid or allowed by the Company in connection therewith.
(x) In case the Company shall take a record of the
Holders of its Common Stock for the purpose of entitling them 1) to receive a
dividend or other distribution payable in Common Stock or in Convertible
Securities, or 2) to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the issue of such right to subscription or purchase, as the case may be.
(c) If (and on each occasion that) the Company shall, at any
time during the Exercise Period, (i) issue any shares of Common Stock as a
dividend upon Common Stock, or (ii) issue any shares of Common Stock in
subdivision of outstanding shares of Common Stock by reclassification or
otherwise, or (iii) combine outstanding shares of Common Stock by
reclassification or otherwise, the then current Purchase Price shall be adjusted
to a price determined by dividing 1) the number of shares of Common Stock
outstanding immediately prior to such dividend, subdivision or combination,
multiplied by the then current Purchase Price, by 2) the total number of shares
of Common Stock outstanding immediately after such issue, and the resulting
quotient shall be the adjusted Purchase Price per share.
(d) In case the Company shall, at any time during the
Exercise Period, declare a dividend or make a distribution upon the Common Stock
payable
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otherwise than out of earnings or earned surplus and otherwise than in Common
Stock or Convertible Securities, then thereafter the Holder hereof, upon the
exercise of any of the rights represented by this Option, will be entitled to
receive the number of Option Shares being purchased upon such exercise and, in
addition and without further payment, the cash, stock or other securities and
other property which the Holder hereof would have received by way of dividends
and distributions (otherwise than out of such earnings or surplus or in Common
Stock or Convertible Securities) if such Holder (i) had exercised this Option
immediately prior to the declaration of such dividend or the making of such
distribution so as to be entitled thereto, and (ii) had retained all dividends
in stock or securities payable in respect of such Common Stock or in respect of
any stock or securities paid as dividends and distributions and originating
directly or indirectly from such Common Stock. For the purposes of the
foregoing, a dividend other than in cash shall be considered payable out of
earnings or earned surplus only to the extent that such earnings or earned
surplus are charged an amount equal to the fair value of such dividend, as
determined in good faith by the Board of Directors of the Company.
11. Adjustment of Number of Shares Purchasable Hereunder. Upon
each adjustment of the Purchase Price pursuant to Section 10 hereof (in this
Section 11 called the Latest Purchase Price Adjustment) the Holder of this
Option shall thereafter (until another such adjustment) be entitled to purchase,
at the adjusted Purchase Price per share resulting from such Latest Purchase
Price Adjustment, the number of shares of Common Stock (calculated to the
nearest whole share), obtained by (a) multiplying the number of shares
purchasable hereunder (as adjusted from time to time as a result of all
adjustments to the Purchase Price made prior to such Latest Purchase Price
Adjustment) by the Purchase Price in effect immediately prior to such Latest
Purchase Price Adjustment, and (b) dividing the product so obtained by the
adjusted Purchase Price resulting from such Latest Purchase Price Adjustment.
12. Notice of Adjustment of Purchase Price. Upon any adjustment
of the Purchase Price and/or an increase or decrease in the number of Option
Shares purchasable upon the exercise of this Option, then, and in each such
case, the Company, within thirty (30) days thereafter, shall give notice thereof
in writing in accordance with Section 14 hereof to the Holder of this Option
stating the adjusted Purchase Price and the increased or decreased number of
shares of Common Stock issuable upon the exercise of this Option and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
13. Effect of Reorganization, Reclassification, Consolidation,
Merger, etc. If, at any time during the Exercise Period, there should be any
capital reorganization or reclassification of the capital stock of the Company
(other than a subdivision or combination of shares provided for in Section 10(d)
hereof) or any consolidation or merger of the Company with another corporation
or any sale,
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conveyance, lease or other transfer by the Company of all or substantially all
of its property to any other corporation, the Holder of this Option shall
thereafter, upon exercise of this Option, be entitled to receive the number of
shares of Common Stock or other securities or property of the Company, or of the
successor corporation resulting from such consolidation or merger, as the case
may be, to which the Option Shares (and any other securities and property) of
the Company, deliverable upon the exercise of this Option, would have been
entitled upon such capital reorganization, reclassification of capital stock,
consolidation, merger, sale or other transfer if this Option had been exercised
immediately prior to such capital reorganization, reclassification of capital
stock, consolidation, merger, sale or other transfer; and, in any such case,
appropriate adjustment (as determined in good faith by the Board of Directors of
the Company) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Holder of this Option
to the end that the provisions set forth herein (including those relating to
adjustments of the Purchase Price and the number of shares issuable upon the
exercise of this Option) shall thereafter be applicable, as near as reasonably
may be, in relation to any shares or other property thereafter deliverable upon
the exercise hereof as if this Option had been exercised immediately prior to
such capital reorganization, reclassification of capital stock, consolidation,
merger, sale or other transfer and the Holder hereof had carried out the terms
of the exchange as provided for by such capital reorganization, reclassification
of capital stock, consolidation or merger.
The Company shall not effect any such capital reorganization,
consolidation or merger unless, upon or prior to the consummation thereof, the
successor corporation shall assume by written instrument, deemed by the Board of
Directors of the Company to be satisfactory in form and substance, the
obligation to deliver to the Holder hereof such shares of stock, securities,
cash or property as such Holder shall be entitled to purchase in accordance with
the foregoing provisions.
14. Notices. All communications and notices hereunder must be in
writing, either delivered in hand or by next day overnight delivery, or sent by
first-class mail, postage prepaid, or sent by telecopier, and, if to the
Company, shall be addressed to it at 6660 Reseda Boulevard, Reseda, California
91335, or at such other address as the Company may hereafter designate in
writing by notice to the Holder of this Option, and, if to such Holder,
addressed to such Holder at the address of such Holder as shown on the books of
the Company.
15. Sundays, Holidays, etc. If the last or appointed day for the
taking of any action required or the expiration of any right granted herein
shall be a Saturday or a Sunday or shall be a legal holiday or a day on which
banking institutions in the City of New York, New York are authorized or
required by law to remain closed, then such action may be taken or right may be
exercised on the next succeeding day which is not a Saturday, a Sunday or a
legal holiday and not a day on
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which banking institutions in the City of New York, New York are authorized or
required by law to remain closed.
16. Type of Option; Laws Applicable to Construction. This Option
is not to be treated as an incentive stock option under the Internal Revenue
Code of 1986, as amended. This agreement shall be construed and enforced in
accordance with the laws of the State of New York without regard to its choice
of law principles.
IN WITNESS WHEREOF, the Company has granted this Option duly
executed by its officers thereunto duly authorized on the date specified above.
PIONEER COMMERCIAL FUNDING CORP.
By:_________________________________
Arthur H. Goldberg, Chairman
and Chief Executive
ATTEST:
___________________________________
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EXHIBIT A
Pioneer Commercial Funding Corp.
6660 Reseda Boulevard
Reseda, California 91335
Attention: Secretary
Gentlemen:
Pursuant to the terms of an Option dated ____________ __, 1994
(the "Option"), the undersigned hereby elects to exercise such Option to the
extent of purchasing _________ shares at $_____ per share for an aggregate
purchase price of $___________.
Enclosed is payment of the purchase price by certified or bank
check in the aggregate amount of the exercise price, payable to Pioneer
Commercial Funding Corp.
Please have the certificate representing said shares registered
and forwarded to the undersigned, as follows:
Name_____________________________________________________________
Street Address___________________________________________________
City__________________________State_______Zip Code_________
Very truly yours,
Holder:_____________________________
By:_________________________________
(Signature)
Name:_______________________________
Title:______________________________
DATE:________________________________
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EXHIBIT B
FOR VALUE RECEIVED, _______________________________________hereby
sells, assigns and transfers unto
Name________________________________________________
(Please typewrite or print in block letters)
Address_____________________________________________
Social Security or Employer Identification No.______
the right to purchase Common Stock represented by this Option to the extent of
___________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _________________ Attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Holder:_____________________________
By:_________________________________
(Signature)
Name:_______________________________
Title:______________________________
DATE:______________________________
Signature Guaranteed
pioneer\documents\stock option
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PIONEER COMMERCIAL FUNDING CORP.
COMMON STOCK PURCHASE OPTION
Option (the "Option") dated as of the 16th day of August, 1996,
from Pioneer Commercial Funding Corp., a New York corporation (the "Company"),
to United Mizrahi Bank and Trust Company (the "Holder"), or its assigns (who,
upon recordation of the transfer of ownership of this Option on the records of
the Company maintained for such purpose, shall be deemed to be the "Holder" or
the "Holders").
WHEREAS, pursuant to a certain agreement of even date herewith
between the Company and the Holder (the "Agreement"), the Company desires to
afford the Holder an opportunity to purchase shares of the Company's $.01 par
value common stock (the "Common Stock"), subject to the terms and conditions set
forth herein.
NOW, THEREFORE, for good and valuable consideration, the Company
hereby agrees as follows:
1. Grant of Option. The Company hereby grants to the Holder the
right and option to purchase up to an aggregate of 41,271 shares of Common Stock
(the "Option Shares"), subject to adjustment as provided for herein.
2. Purchase Price;. The purchase price of the shares of Common
Stock covered by this Option shall be $5.50 per share (the "Initial Exercise
Price"), subject to adjustment (such price as so adjusted from time to time
referred to herein as the "Purchase Price") as provided for herein.
3. Term of Option; Vesting; Termination; Transferability. The
term of this Option shall be for a period of five years commencing on the date
first above written (the "Exercise Period"). Until the first anniversary of the
date first above written, the Holder shall not be entitled to purchase any
Option Shares hereunder. This Option shall vest at the rate of 10,318 Option
Shares per annum on the first, second and third anniversaries of the date first
above written. On the fourth anniversary of the date first above written, this
Option shall vest with respect to 10,317 Option Shares. Anything herein
contained to the contrary notwithstanding, if, at any time during the term of
this Option, the Revolving Line of Credit and Security Agreement dated as of May
25, 1993 and executed by the Holder and the Company, as amended, modified and/or
superseded from time to time thereafter, shall be terminated, canceled or not
renewed for any reason, the term of this Option shall thereupon be deemed to
have expired, and the then unexercised and/or unvested portion of this Option
shall thereupon be canceled
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and shall be thereafter unenforceable. Subject to the conditions and limitations
set forth in Section 9 hereof, the Holder shall be entitled to sell, assign or
otherwise transfer ownership of this Option at any time during, but not after,
the Exercise Period.
4. Reservation of Shares. At all times during the Exercise Period
there shall be reserved for issuance and/or delivery upon exercise of this
Option such number of shares of Common Stock as shall be required for issuance
and delivery in connection therewith.
5. Exercise of Option. This Option may be exercised in whole at
any time during the Exercise Period or in part from time to time during such
period by executing and delivering a notice of exercise in the form attached
hereto as Exhibit A. Such notice shall be accompanied by payment of the full
purchase price of such shares by certified or bank check payable to the order of
the Company.
6. Exchange, Transfer, Assignment or Loss of Option. This Option
is exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company for other options (collectively, the
"Options") of different denominations entitling the Holder thereof to purchase
in the aggregate, upon the same terms, and subject to the same conditions set
forth, in this Option, the same number of shares of Common Stock purchasable
hereunder. Subject to the provisions of Section 9 of this Option, upon surrender
of this Option to the Company with the Assignment Form (annexed hereto as
Exhibit B) duly executed, the Company, at its sole expense, shall execute and
deliver a new Option in the name of the assignee named in such instrument of
assignment and this Option shall promptly be cancelled. This Option may be
divided or combined with other Options upon presentation hereof and thereof at
the office of the Company together with a written notice specifying the names
and denominations in which new Options are to be issued and signed by the Holder
hereof. The term "Option" as used herein includes any Option into which this
Option may be divided or exchanged. Upon receipt by the Company of an affidavit
executed by the Holder attesting to the loss, theft, destruction or mutilation
of this Option, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Option, if mutilated, the Company will execute and deliver a new Option of like
tenor and date.
7. Rights before Issuance and Delivery of Shares. No Holder shall
be entitled to the privileges of stock ownership in respect of any shares issued
upon exercise of this Option, unless and until such shares of Common Stock have
been issued to such Holder as fully paid and non-assessable shares.
8. Conditions Upon Issuance of Option Shares; Registration
Rights.
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(a) Unregistered Shares. Neither this Option nor the
Common Stock issuable upon exercise of this Option has been registered pursuant
to a registration statement (a "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"). Until such time as a
Registration Statement pertaining to the Option Shares shall be declared
effective by the Securities and Exchange Commission (the "Commission"), the
Company shall not be required to issue any certificate for shares of Common
Stock purchased upon the exercise of this Option unless, in connection with such
exercise:
(i) The Holder makes and delivers the following
representations to the Company in writing:
a) The Holder is purchasing the Option
Shares solely for its own account.
1) The Holder is an "accredited investor"
(as that term is defined in rule 501 of Regulation D under the Act). The Holder
acknowledges that it has been given, or the person who exercises full investment
discretion to act on the Holder's behalf has been given, the opportunity to ask
questions and receive satisfactory answers concerning the purchase of Option
Shares upon exercise of this Option, the operations and financial condition of
the Company, and the accuracy of the information provided by the Company to the
Holder or the person who exercises full investment discretion to act in the
Holder's behalf.
2) The Holder has no intention of
distributing or reselling the Option Shares or any part thereof, or interest
therein, in any transaction which would be in violation of the securities laws
of the United States of America or any state securities laws, without prejudice,
however, to the Holder's right at all times to sell or otherwise dispose of all
or any part of the Option Shares pursuant to the above-mentioned registration
thereof under the Securities Act and, if applicable, qualification under such
state securities laws or under an exemption from such registration available
under the Securities Act.
3) If the Holder desires to sell or
otherwise dispose of all or any part of the Option Shares (other than pursuant
to an effective Registration Statement under the Securities Act or a sale or
other disposition made pursuant to the Commission's Rule 144), if requested by
the Company, the Holder will deliver to the Company, an opinion of counsel,
reasonably satisfactory in form and substance to the Company and its counsel,
that such exemption is available.
(ii) Upon original issuance thereof, and until such
time as the same is no longer required under the applicable requirements of the
Securities Act, the certificates evidencing the Holder's ownership of the Option
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Shares (and all certificates for securities issued in exchange therefor or
substitution thereof) shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED
UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT OR SUCH LAWS."
(b) Piggyback Registration. If, at any time during the
period of five years commencing on the date hereof, the Company proposes to
register any of its shares of capital stock under the Securities Act (other than
in connection with an initial public offering or other offering in which the
underwriter thereof objects to the registration of option shares, a merger or
pursuant to Form S-8) it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such Registration Statement, to the
Holder of its intention to do so. If the Holder or, if there shall be more than
one Holder, if the Holders holding a majority (as such term is defined in
Section 8(f) hereof) of the Option Shares then issued and outstanding, notify
the Company within twenty (20) days after receipt of any such notice of its or
their desire to include any of the Option Shares in such proposed Registration
Statement, the Company shall afford to each of such Holders the opportunity to
have any such Option Shares registered under such Registration Statement.
Notwithstanding the provisions of this Section 8(b), the Company shall
have the right at any time after it shall have given written notice pursuant
this Section (irrespective of whether a written request for inclusion of any
Option Shares shall have been made) to elect not to file any such proposed
Registration Statement, or to withdraw the same after the filing but prior to
the effective date thereof.
(c) Covenants of the Company with Respect to Registration.
In connection with any registration of Option Shares under Section 8(b) hereof,
the Company covenants and agrees as follows:
(i) The Company shall use its best efforts to file
a Registration Statement within sixty (60) days of receipt of any demand
therefor, shall use its best efforts to have any Registration Statement declared
effective at the earliest possible time, shall file such post-effective
amendments thereto as may be necessary to maintain such effectiveness for a
period of not less than nine months and shall furnish each Holder desiring to
sell Option Shares, such number of prospectuses as shall reasonably be
requested.
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(ii) The Company shall pay all costs (excluding
fees and expenses of Holder(s) counsel and any underwriting or selling
commissions), fees and expenses in connection with all Registration Statements
filed pursuant to Section 8(b) hereof including, without limitation, the
Company's legal and accounting fees, printing expenses, and blue sky fees and
expenses.
(iii) The Company will take all necessary action
which may be required in qualifying or registering the Option Shares included in
a Registration Statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(iv) In the event that the Company becomes aware of
any untrue statement of a material fact, or of an omission to state a material
fact that is required to be stated therein or that is necessary to make the
statements contained therein not misleading in the light of the circumstances
then existing, the Company will thereupon give notice to the Holder(s) of the
Option Shares of such mistatement or omission. The Company also shall indemnify
the Holder(s) of the Option Shares to be sold pursuant to any Registration
Statement and each person, if any, who controls such Holder(s) within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Securities Act, the Exchange Act or
otherwise, arising from such Registration Statement.
(d) The Company's obligations to file a Registration
Statement pursuant to Section 8(b) hereof with respect to any of the Option
Shares are expressly conditioned, in each instance, upon the Company's receipt
from the Holder(s) of the Option Shares to be offered for sale pursuant to such
Registration Statement, severally, and not jointly, of written agreements to
indemnify the Company, its officers and directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Securities Act, the Exchange Act or otherwise, arising from
information furnished in writing by or on behalf of such Holders for specific
inclusion in such Registration Statement.
(e) The Company shall as soon as practicable after the
effective date of such Registration Statement, and in any event within 15 months
thereafter, issue an earnings statement (which need not be audited) complying
with
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Section 11(a) of the Securities Act and covering a period of at least 12
consecutive months beginning after the effective date of the Registration
Statement.
(f) For purposes of this Agreement, the term "majority" in
reference to the Holder or Holders of this Option and the Option Shares
purchasable hereunder, shall mean any combination of issued and outstanding
Option Shares and rights to purchase Option Shares which if exercised, would at
the time in question equal or exceed 10,001 Option Shares
9. Transfer to Comply with the Securities Act. Neither this
Option nor the Option Shares issuable upon exercise of this Option may be sold,
assigned, transferred or otherwise disposed of except as follows:
(a) To a person who, in the opinion of counsel for the
Company, is a person to whom this Option or Option Shares may legally be
transferred without registration and without the delivery of a current
prospectus under the Securities Act with respect thereto, and then only against
receipt of an agreement of such person setting forth the representations
specified in Section 8(a) hereof, and such person's agreement to comply with the
provisions of this Section 9 with respect to any resale or other disposition of
such securities which agreement shall be reasonably satisfactory in form and
substance to the Company and its counsel; or
(b) to any person upon delivery of a prospectus then
meeting the requirements of the Securities Act relating to such securities and
the offering thereof for such sale or disposition.
10. Adjustment of Purchase Price. The Purchase Price shall be
subject to adjustment from time to time during the Exercise Period as follows:
(a) If (and on each occasion that) the Company shall, at
any time during the Exercise Period, issue or sell Additional Stock (as that
term is defined in Section 10(b)(i) hereof) either without consideration or for
a consideration per share less than the Purchase Price in effect immediately
prior to the issue or sale of such Additional Stock, then, and in any such
event, the Purchase Price in effect immediately prior to such issue or sale
shall be reduced, as of the opening of business on the date of such issue or
sale, to a price determined by multiplying such Purchase Price in effect
immediately prior to such issue or sale, by a fraction: (i) the numerator of
which shall be equal to the sum of (A) the total number of shares of Common
Stock issued and outstanding at the close of business on the day next preceding
the date of such issue or sale, plus (B) the total number of shares of Common
Stock which could be purchased at the aforesaid Purchase Price with the
aggregate amount of the consideration (if any) received by the Company (or,
without duplication, deemed to be received as provided in Sections 10(b)(iii)
and
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10(b)(iv) hereof) upon such issue or sale; and (ii) the denominator of which
shall be equal to the total number of shares of Common Stock issued and
outstanding at the close of business on the date of such issue or sale
(including any such shares deemed to have been issued or sold as provided in
Sections 10(b)(iii) and 10(b)(iv) hereof).
(b) For the purposes of this Section 10 the following
provisions shall also be applicable:
(i) The term Additional Stock shall mean any Common
Stock issued or sold, or deemed to have been issued or sold pursuant to Section
10(b)(iii) or Section 10(b)(iv) hereof, by the Company during the Exercise
Period, other than Common Stock issued upon the exercise of this Option or upon
exercise of any of the other Options, or upon the exercise of such other options
as may be issued by the Company to the Initial Holder, (in each case) in whole
or in part.
(ii) In determining the number of shares of Common
Stock outstanding at any time, shares of Common Stock owned by the Company shall
not be deemed to be outstanding.
(iii) In case the Company, at any time during the
Exercise Period, shall issue or sell any rights to subscribe for or to purchase,
or grant any options for the purchase of, shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock
("Convertible Securities"), whether or not such rights or options or the right
to convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share at which shares of Common Stock are
issuable upon the exercise of such rights or options or upon conversion or
exchange of such Convertible Securities, determined by dividing:
1) the total amount, if any, received or
receivable by the Company as consideration for the issuance of
such rights or the granting of such options, plus the minimum
aggregate amount of additional consideration payable to the
Company upon the exercise of such rights or options, plus, in
the case of such Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the
issue of such Convertible Securities and upon the conversion or
exchange thereof; by
2) the maximum number of shares of Common
Stock issuable upon the exercise of such rights or options or
upon the conversion or exchange of the maximum number of such
Convertible Securities issuable on the exercise of such rights
or options;
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shall be less than the Purchase Price in effect immediately prior to the issue
of such rights or the grant of such options, then the maximum number of shares
of Common Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of the maximum number of such Convertible Securities
issuable upon the exercise of such rights or options shall be deemed to be
issued or sold for such price per share; provided, however, that upon the
expiration of such rights or options, and, in the case of options to purchase
Convertible Securities, upon the expiration of the right to convert or exchange
such Convertible Securities, the currently applicable Purchase Price in effect
immediately prior to such expiration shall forthwith be adjusted to such
Purchase Price as would have obtained had the adjustments made upon the issuance
of such rights or the granting of such options been made upon the basis of the
issuance of only the number of shares of Common Stock actually issued on the
exercise of such rights or options or on the conversion or exchange of such
Convertible Securities (or in the case of rights or options to purchase
Convertible Securities, actually issued and at the time still issuable upon the
conversion or exchange of the Convertible Securities actually issued), and upon
the basis of only the consideration applicable thereto, and any shares issuable
upon the exercise of such rights or options which have expired or upon the
conversion or exchange of such Convertible Securities, the right to convert or
exchange which has expired, shall not thereafter be deemed to be outstanding and
the consideration applicable thereto shall not thereafter be deemed to have been
received. If the said rights or options are issued or granted in conjunction
with the sale of other securities of the Company, the part of the consideration
allocable to the said rights and options, and the part of the consideration
allocable to the said other securities, shall be determined in good faith by the
Board of Directors of the Company.
(iv) In case the Company, at any time during the
Exercise Period, shall issue or sell any Convertible Securities, whether or not
the rights to convert or exchange are immediately exercisable, and the price per
share at which shares of Common Stock are deliverable upon such conversion or
exchange, determined by dividing:
1) the total amount received or receivable
by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration (if any) payable to the Company upon
such conversion or exchange; by
2) the maximum number of shares of Common
Stock issuable as of the date of issue of such Convertible
Securities to effect the conversion or exchange of all such
Convertible Securities;
shall be less than the Purchase Price in effect immediately prior to the time of
such issue or sale, then such issue or sale shall be deemed to be an issue or
sale (as of the
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date of issue or sale of such Convertible Securities) of the maximum number of
shares of Common Stock necessary to be issued as of that date to effect the
conversion or exchange of all such Convertible Securities, and the gross amount
received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of additional
consideration (if any) payable to the Company upon such conversion or exchange,
shall be deemed to be the consideration actually received (as of the date of the
issue or sale of such Convertible Securities) for the issue or sale of such
Common Stock; provided, however, that upon the termination of the right to
convert or to exchange such Convertible Securities for Common Stock, the
Purchase Price shall forthwith be adjusted to such Purchase Price which would
have obtained had the adjustments made upon the issuance of such Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock actually issued upon the conversion or exchange thereof, and
upon the basis of the consideration applicable only to the Convertible
Securities so converted or exchanged, and no shares issuable upon the conversion
or exchange of such Convertible Securities which were not actually so issued
shall thereafter be deemed to be outstanding and the consideration applicable
thereto shall not thereafter be deemed to have been received. No adjustment of
the Purchase Price shall be made pursuant to the provisions of this Section
10(b)(iv) upon any issue or sale of Convertible Securities if such issue or sale
has been made upon the exercise of any rights to subscribe for or to purchase,
or any options to purchase, any such Convertible Securities for which an
adjustment of the Purchase Price has been made pursuant to Section 10(b)(iii)
hereof.
(v) If the amount of consideration payable to the
Company upon the exercise of any right or option to which Section 10(b)(iii)
hereof is applicable or upon the conversion or exchange of any Convertible
Securities referred to in Sections 10(b)(iii) or 10(b)(iv) hereof shall change
at any time (other than under or by reason of provisions designed to protect
against dilution), then, forthwith upon each such change becoming effective, all
such rights or options or all such rights of conversion or exchange not
theretofore exercised shall be deemed to have expired or terminated, as the case
may be, and the Purchase Price shall forthwith be adjusted in accordance with
the proviso contained in Section 10(b)(iii) or Section 10(b)(iv) hereof, as the
case may be, and further adjusted as though such rights or options or
Convertible Securities deemed expired or terminated were newly issued and
convertible or exercisable upon the payment of such changed consideration.
(vi) If the consideration payable to the Company
upon the exercise of any right or option to which Section 10(b)(iii) hereof is
applicable or upon the conversion or exchange of any Convertible Securities
referred to in Section 10(b)(iii) or 10(b)(iv) hereof shall decrease at any time
under or by reason of provisions with respect thereto designed to protect the
Holders thereof against
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dilution, the Purchase Price which would apply if purchase rights hereunder were
being exercised immediately after such event shall forthwith be decreased to the
Purchase Price that would have obtained had the adjustments made upon the
issuance of such right, option or Convertible Securities been made upon the
basis of 1) the issuance of (and the total consideration received for) the
shares of Common Stock theretofore delivered upon the exercise of such rights or
options or upon the conversion or exchange of such Convertible Securities, and
2) the issuance of (and the total minimum consideration thereafter receivable
for) the maximum number of shares of Common Stock thereafter deliverable upon
the exercise of such rights or options or upon the conversion or exchange of
such Convertible Securities.
(vii) In case any dividends on any class of stock
(other than Common Stock) of the Company, payable in Common Stock or Convertible
Securities, shall be declared or paid by the Company, the Common Stock, or such
Convertible Securities, as the case may be, so issued, shall be deemed to have
been issued without consideration.
(viii) In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for cash, the
consideration received by the Company therefor shall be deemed to be the amount
received by the Company therefor, before deducting therefrom all underwriting
commissions, discounts or concessions and all finder's fees paid or allowed by
the Company in connection therewith.
(ix) In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for a consideration
other than cash, then, in any such event, the amount of the consideration (other
than cash) received by the Company shall be deemed to be the fair value of such
consideration, as determined in good faith by the Board of Directors of the
Company, before deducting all underwriting commissions, discounts or concessions
and all finder's fees paid or allowed by the Company in connection therewith.
(x) In case the Company shall take a record of the
Holders of its Common Stock for the purpose of entitling them 1) to receive a
dividend or other distribution payable in Common Stock or in Convertible
Securities, or 2) to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the issue of such right to subscription or purchase, as the case may be.
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(c) If (and on each occasion that) the Company shall, at
any time during the Exercise Period, (i) issue any shares of Common Stock as a
dividend upon Common Stock, or (ii) issue any shares of Common Stock in
subdivision of outstanding shares of Common Stock by reclassification or
otherwise, or (iii) combine outstanding shares of Common Stock by
reclassification or otherwise, the then current Purchase Price shall be adjusted
to a price determined by dividing 1) the number of shares of Common Stock
outstanding immediately prior to such dividend, subdivision or combination,
multiplied by the then current Purchase Price, by 2) the total number of shares
of Common Stock outstanding immediately after such issue, and the resulting
quotient shall be the adjusted Purchase Price per share.
(d) In case the Company shall, at any time during the
Exercise Period, declare a dividend or make a distribution upon the Common Stock
payable otherwise than out of earnings or earned surplus and otherwise than in
Common Stock or Convertible Securities, then thereafter the Holder hereof, upon
the exercise of any of the rights represented by this Option, will be entitled
to receive the number of Option Shares being purchased upon such exercise and,
in addition and without further payment, the cash, stock or other securities and
other property which the Holder hereof would have received by way of dividends
and distributions (otherwise than out of such earnings or surplus or in Common
Stock or Convertible Securities) if such Holder (i) had exercised this Option
immediately prior to the declaration of such dividend or the making of such
distribution so as to be entitled thereto, and (ii) had retained all dividends
in stock or securities payable in respect of such Common Stock or in respect of
any stock or securities paid as dividends and distributions and originating
directly or indirectly from such Common Stock. For the purposes of the
foregoing, a dividend other than in cash shall be considered payable out of
earnings or earned surplus only to the extent that such earnings or earned
surplus are charged an amount equal to the fair value of such dividend, as
determined in good faith by the Board of Directors of the Company.
11. Adjustment of Number of Shares Purchasable Hereunder. Upon
each adjustment of the Purchase Price pursuant to Section 10 hereof (in this
Section 11 called the Latest Purchase Price Adjustment) the Holder of this
Option shall thereafter (until another such adjustment) be entitled to purchase,
at the adjusted Purchase Price per share resulting from such Latest Purchase
Price Adjustment, the number of shares of Common Stock (calculated to the
nearest whole share), obtained by (a) multiplying the number of shares
purchasable hereunder (as adjusted from time to time as a result of all
adjustments to the Purchase Price made prior to such Latest Purchase Price
Adjustment) by the Purchase Price in effect immediately prior to such Latest
Purchase Price Adjustment, and (b) dividing the product so obtained by the
adjusted Purchase Price resulting from such Latest Purchase Price Adjustment.
11
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12. Notice of Adjustment of Purchase Price. Upon any adjustment
of the Purchase Price and/or an increase or decrease in the number of Option
Shares purchasable upon the exercise of this Option, then, and in each such
case, the Company, within thirty (30) days thereafter, shall give notice thereof
in writing in accordance with Section 14 hereof to the Holder of this Option
stating the adjusted Purchase Price and the increased or decreased number of
shares of Common Stock issuable upon the exercise of this Option and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
13. Effect of Reorganization, Reclassification, Consolidation,
Merger, etc. If, at any time during the Exercise Period, there should be any
capital reorganization or reclassification of the capital stock of the Company
(other than a subdivision or combination of shares provided for in Section 10(d)
hereof) or any consolidation or merger of the Company with another corporation
or any sale, conveyance, lease or other transfer by the Company of all or
substantially all of its property to any other corporation, the Holder of this
Option shall thereafter, upon exercise of this Option, be entitled to receive
the number of shares of Common Stock or other securities or property of the
Company, or of the successor corporation resulting from such consolidation or
merger, as the case may be, to which the Option Shares (and any other securities
and property) of the Company, deliverable upon the exercise of this Option,
would have been entitled upon such capital reorganization, reclassification of
capital stock, consolidation, merger, sale or other transfer if this Option had
been exercised immediately prior to such capital reorganization,
reclassification of capital stock, consolidation, merger, sale or other
transfer; and, in any such case, appropriate adjustment (as determined in good
faith by the Board of Directors of the Company) shall be made in the application
of the provisions herein set forth with respect to the rights and interests
thereafter of the Holder of this Option to the end that the provisions set forth
herein (including those relating to adjustments of the Purchase Price and the
number of shares issuable upon the exercise of this Option) shall thereafter be
applicable, as near as reasonably may be, in relation to any shares or other
property thereafter deliverable upon the exercise hereof as if this Option had
been exercised immediately prior to such capital reorganization,
reclassification of capital stock, consolidation, merger, sale or other transfer
and the Holder hereof had carried out the terms of the exchange as provided for
by such capital reorganization, reclassification of capital stock, consolidation
or merger.
The Company shall not effect any such capital reorganization,
consolidation or merger unless, upon or prior to the consummation thereof, the
successor corporation shall assume by written instrument, deemed by the Board of
Directors of the Company to be satisfactory in form and substance, the
obligation to deliver to the Holder hereof such shares of stock, securities,
cash or property as such Holder shall be entitled to purchase in accordance with
the foregoing provisions.
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14. Notices. All communications and notices hereunder must be in
writing, either delivered in hand or by next day overnight delivery, or sent by
first-class mail, postage prepaid, or sent by telecopier, and, if to the
Company, shall be addressed to it at 6660 Reseda Boulevard, Reseda, California
91335, or at such other address as the Company may hereafter designate in
writing by notice to the Holder of this Option, and, if to such Holder,
addressed to such Holder at the address of such Holder as shown on the books of
the Company.
15. Sundays, Holidays, etc. If the last or appointed day for the
taking of any action required or the expiration of any right granted herein
shall be a Saturday or a Sunday or shall be a legal holiday or a day on which
banking institutions in the City of New York, New York are authorized or
required by law to remain closed, then such action may be taken or right may be
exercised on the next succeeding day which is not a Saturday, a Sunday or a
legal holiday and not a day on which banking institutions in the City of New
York, New York are authorized or required by law to remain closed.
16. Type of Option; Laws Applicable to Construction. This Option
is not to be treated as an incentive stock option under the Internal Revenue
Code of 1986, as amended. This agreement shall be construed and enforced in
accordance with the laws of the State of New York without regard to its choice
of law principles.
IN WITNESS WHEREOF, the Company has granted this Option duly
executed by its officers thereunto duly authorized on the date specified above.
PIONEER COMMERCIAL FUNDING CORP.
By:
_________________________________
Arthur H. Goldberg, Chairman
and Chief Executive
ATTEST:
____________________________________
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EXHIBIT A
Pioneer Commercial Funding Corp.
6660 Reseda Boulevard
Reseda, California 91335
Attention: Secretary
Gentlemen:
Pursuant to the terms of an Option dated ____________ __, 1996
(the "Option"), the undersigned hereby elects to exercise such Option to the
extent of purchasing _________ shares at $_____ per share for an aggregate
purchase price of $___________.
Enclosed is payment of the purchase price by certified or bank
check in the aggregate amount of the exercise price, payable to Pioneer
Commercial Funding Corp.
Please have the certificate representing said shares registered
and forwarded to the undersigned, as follows:
Name ____________________________________________________________
Street Address___________________________________________________
City__________________________ State___________ Zip Code_________
Very truly yours,
Holder:____________________________
By:________________________________
(Signature)
Name:______________________________
Title:_____________________________
_____________________________
DATE:_______________________________
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EXHIBIT B
FOR VALUE RECEIVED,_______________________________________hereby
sells, assigns and transfers unto
Name ____________________________________________________________
(Please typewrite or print in block letters)
Address __________________________________________________________
Social Security or Employer Identification No. ____________
the right to purchase Common Stock represented by this Option to the extent of
___________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint __________________ Attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Holder: ____________________________
By: ________________________________
(Signature)
Name: ______________________________
Title:______________________________
DATE: ____________________________
Signature Guaranteed
__________________________________
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REVOLVING LINE OF CREDIT AND SECURITY AGREEMENT
REVOLVING LINE OF CREDIT AND SECURITY AGREEMENT, entered into as of this
25th day of May 1993, by and between PIONEER COMMERCIAL FUNDING CORPORATION, a
New York corporation (herein referred to as "Borrower"), and UMB Bank and Trust
Company, a New York commercial bank (herein referred to as "Bank").
RECITALS
Borrower desires to borrow, and the Bank desires to lend, under a
secured revolving line of credit not to exceed at any one time outstanding, the
principal amount of One Million Dollars ($1,000,000.00) for the first six (6)
months of the term of the Line and to increase thereafter to Two Million Dollars
($2,000,000.00) for the purpose of funding a mortgage warehouse revolving line
of credit provided there has been no Default or Event of Default as defined
herein; and
Bank is willing to extend credit to Borrower from time to time from the
Effective Date of this Agreement to the Maturity Date in the amount hereinabove
specified upon the representations and warranties and subject to the terms and
provisions hereinafter set forth;
NOW THEREFORE, in consideration of these Recitals and of the mutual
covenants and conditions herein contained, the parties hereto agree as follows:
SECTION I
DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. The following terms, as used in this Agreement, shall
have the following meanings, unless the context clearly indicates otherwise:
"Advance(s)" means any amount of money drawn under the Revolving Line of
Credit but shall be limited to an amount equal to two points below the
percentage of the principal mortgage amount that is funded by the Borrower and
shall be used for the purpose of purchasing a Mortgage originated by a
pre-approved mortgage banking company.
"Advance Maturity Date" means, for any Advance, the date which
corresponds to the date for the Mortgage Take-out for such Advance.
"Affiliate" means any person (i) which directly or indirectly controls,
or is controlled by, or is under common control with, the Borrower or a
Subsidiary; (ii) which directly or indirectly beneficially owns or holds five
percent (5%) or more of
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any class of voting stock of the Borrower or any Subsidiary; or (iii) five
percent (5%) or more of the voting stock of which is directly or indirectly
beneficially owned or held by the Borrower or the Subsidiary. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person whether through the
ownership of voting securities, by contract, or otherwise.
"Agreement" means this Revolving Line of Credit and Security Agreement,
as amended, supplemented, or modified from time to time.
"Business Day" means a day other than a Saturday, Sunday, legal holiday
or day on which Bank is authorized to close in the State of New York.
"Chapter 11 Case" means that certain matter known as In re PIONEER
COMMERCIAL FUNDING CORPORATION a/k/a PCFC of California, Chapter 11 Case No. 30
B 20085 (HS) filed in the United States Bankruptcy Court for the Southern
District of New York.
"Collateral" means all property which is subject or is to be subject to
the lien granted by the Security Agreement to be delivered to the Bank by the
Borrower pursuant to this Agreement.
"Commitment" means the Bank's obligation to fund the Line to the
Borrower pursuant to Article II in the amount referred to therein.
"Debt" means all items which, in accordance with GAAP, would be included
in determining total liabilities as shown on the liability side of a balance
sheet as at the date Debt is to be determined and, in any event, shall include
(without duplication) letters of credit and all obligations relating thereto,
any liability secured by any mortgage, pledge, lien or security interest on
property owned or acquired, whether or not such liability shall have been
assumed, and guarantees, endorsements (other than for collection in the ordinary
course of business} and other contingent obligations in respect of the
obligations of others. When Debt is to be determined on a consolidated basis for
two or more entities, obligations of one guaranteed by another shall not be
counted twice.
"Default" means the occurrence of any event specified in Section 7
regardless of whether or not any requirements for the giving of notice, the
lapse of time, or both, or any other condition, has been satisfied.
"Effective Date" means the entry date of an Order confirming the Plan of
Reorganization in the Chapter 11 Case.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same is or may be amended, and the regulations and interpretations thereof.
"Event of Default" means any act or occurrence specified as an Event of
Default in Section 7 hereof provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has been satisfied.
"GAAP" means generally accepted accounting principles and practices in
the United States, including principles of consolidation as consistently applied
by Borrower and certified to by the firm of independent certified public
accountants regularly employed as Borrower's auditors and approved by the Bank.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), or preference, priority, or other security agreement or preferential
arrangement, charge or encumbrance of any kind or nature whatsoever (including
without limitation any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction to evidence any of the
foregoing).
"Line" means the Revolving Line of Credit.
"Loan Documents" means this Agreement, the Notes, the financing
statements covering the Collateral, and any and all other documents,
instruments, certificates an agreements executed and/or delivered by Borrower in
connection herewith, or any one, more, or all of the foregoing, as the context
shall require.
"Maturity Date" means fifteen (15) months from the date of confirmation
of the Plan of Reorganization submitted in the Chapter 11 Case.
"Maximum Rate" shall mean the maximum legal rate of interest in the
State of New York or if no such rate then exists then of the highest lawful rate
of interest permitted under such other applicable law of Bank's choice in effect
on the date thereof.
"Mortgage" shall mean any mortgage which is in compliance with all
FNMA/FHLMC requirements and purchased pursuant to the Mortgage Warehouse Line.
"Mortgage Warehouse Line" shall mean the Line extended to the Borrower
by the Bank for the purpose of providing financing to the Borrower for the
acquisition of individual consumer mortgage loans and immediate disposition into
the secondary mortgage market.
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"Note" means any Revolving Credit Note.
"Person" shall mean an individual, partnership, subsidiary, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority, or other entity of whatever nature.
"Plan" means an employee benefit plan maintained for employees of
Borrower and subject to the provisions of ERISA.
"Plan of Reorganization" means that certain first amended and restated
plan of reorganization as such plan may be amended, submitted by the Borrower in
the Chapter 11 Case.
"Prime Rate" means the highest "rime rate" of interest, quoted from time
to time, by The Wall Street Journal as the "base rate on corporate loans at
large U.S. money center commercial banks," provided, however, that in the event
that The Wall Street Journal ceases quoting a "prime rate" of the type
described, "Prime Rate" shall mean the highest per annum rate of interest quoted
as the "Bank Prime Loan" rate for "This week" in Statistical Release H. 15 (519)
published from time to time by the Board of Governors of the Federal Reserve
System. The "Prime Rate" shall change effective on the date of the publication
of any change in the applicable index by which such "Prime Rate" is determined.
"Prohibited Transaction" means any transaction set forth in ERISA or
Section 4975 of the Internal Revenue Code of 1954, as amended from time to time.
"Qualified Investor" means any person or company that has been
preapproved by the Bank to purchase a mortgage from a Bank pre-approved mortgage
banking company.
"Reportable Event" means any of the events set forth in Section 4042 of
ERISA.
"Revolving Credit Note" means the promissory note, dated of even date
herewith, as amended or supplemented from time to time, in a principal amount
equal to the maximum amount of the Revolving Line of Credit, evidencing Advances
to be obtained by Borrower under the Revolving Line of Credit, together with any
renewals or extensions thereof, in whole or in part.
"Revolving Line of Credit" means that line of credit extended to
Borrower pursuant to section 2 hereof.
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"Subsidiary" means any corporation organized under the laws of any state
of the United States or the District of Columbia and conducting all its business
and having all its assets within the United States, all of whose outstanding
stock of all classes (other than director's qualifying shares, if any) is at the
time owned by the Borrower and/or one or more Subsidiaries.
"Take-out" means the sale to a Qualified Investor pre-approved by the
Bank of any Mortgage(s).
"Tangible Net Worth" means the excess of total assets over total debt of
Borrower determined on a consolidated basis, excluding, however, from the
determination of total assets (i) all intangible assets, including, without
limitation, goodwill (whether representing the excess cost over book value of
assets acquired or otherwise), patents, trademarks, trade names, copyrights,
franchises and deferred charges (including, without limitation, unamortized debt
discount and expense, organization costs, research and product development costs
and management contracts, (ii) treasury stock, (iii) cash set apart and held in
a sinking or other analogous fund established for the purpose of redemption or
other retirement of stock, and (iv) to the extent not already deducted from
total assets, reserves for depreciation, depletion, obsolescence and/or
amortization of properties and all other reserves or appropriation of retained
earnings which, in accordance with GAAP, should be established in connection
with the business conducted by Borrower.
"UCC" means the Uniform Commercial Code as in effect in the State of New
York.
1.2 ACCOUNTING TERMS. All accounting terms whether or not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data submitted pursuant to this Agreement shall be prepared in accordance with
GAAP.
SECTION 2
THE REVOLVING LINE OF CREDIT
2.1 THE REVOLVING LINE OF CREDIT. Subject to all of the terms and
provisions of this Agreement, Bank agrees to make Advances to the Borrower from
time to time during the period from the Effective Date up to but not exceeding
more than thirty (30) days before the Maturity Date in an aggregate amount not
to exceed at any one time outstanding, the principal amount of One Million
Dollars ($1,000,000.00) for the first six (6) months of the term of the Line and
to increase thereafter to Two Million Dollars ($2,000,000.00) provided there has
been no Default.
5
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Borrower may borrow, repay and reborrow under the Line so long as the unpaid
principal balance does not exceed the maximum amount specified above.
2.2 ADVANCES. Advances granted by Bank to Borrower hereunder during the
first six (6) months of the Line shall be evidenced by a promissory note in
substantially the form attached hereto as Exhibit "A" with appropriate
insertions (herein referred to as the "First Note") dated of even date herewith
and maturing six months after the Effective Date on which date the full amount
of principal and interest remaining unpaid on the Note shall be due and payable.
If no Event of Default is then continuing, the Bank shall then renew the First
Note upon the same terms and conditions for an additional nine month term.
Advances granted by Bank to Borrower thereunder shall be evidenced by a
promissory note in substantially the form attached hereto as Exhibits "B"and "C"
(the "Second Notes" and "Consolidated Note" respectively) with appropriate
insertions and maturing fifteen (15) months after the Effective Date on which
date the full amount of principal and interest remaining unpaid on the
Consolidated Note shall be due and payable. The First Note, Second Note and
Consolidated Note shall bear interest from the date thereof on the outstanding
unpaid principal balance thereof, from time to time, at a rate per annum,
(computed on the basis of a year of three hundred sixty (360) days for the
actual number of days elapsed), equal to the Bank's Prime Rate in effect from
time to time plus One percent ( 1 %) with any change in rate to be effective
simultaneously with the corresponding change in the Bank's Prime Rate, payable
monthly commencing the first day of the first month succeeding the Effective
Date and continuing on the first day of each month thereafter until the Maturity
Date on which date all remaining interest and principal due hereunder shall be
due and payable. Should interest and/or principal not be paid when due, it/they
shall thereafter bear interest at the Maximum Rate.
The excess of Advances made by Bank over payments of principal shall be
the outstanding principal balance of the Note from time to time and at any time.
The books and records of Bank shall be evidence of any Advance, the outstanding
principal balance of the Note, accrued interest on the Note, and any payment of
principal or interest on the Note.
The Borrower shall pay to the Bank a $.50 penalty fee for any Advance
not paid on the Advance Maturity Date for such Advance unless, prior to said
Date, a new Take-out commitment has been provided by the Borrower and approved
by the Bank which extends the Advance Maturity Date.
Any extension of time for payment of principal or of interest on the
Note resulting from the due date falling on a day other than a Business Day
shall be included in the computation of interest.
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2.3 REQUEST FOR ADVANCE. Borrower shall furnish to Bank a written
request for each Advance at least one ( 1 ) Business Day prior to the date of
the proposed Advance, which request shall state the date and amount of the
Advance requested from Bank and shall be accompanied by a Certificate of No
Default in substantially the form attached hereto as Exhibit "D" and provided
for in Section 3.2(b) hereof. If said request is by telephone, it must be from a
pre-authorized officer of Borrower and it must be confirmed in writing by
Borrower no later than twenty-four (24) hours thereafter. The Bank will make
such Advance available to a preapproved title company in immediately available
funds by crediting the amount thereof to the Borrower's account. Notwithstanding
the foregoing, Borrower shall be liable for all Advances made by Bank pursuant
to telephone request whether or not Borrower has confirmed same in writing.
2.4 PREPAYMENT OF THE NOTE. Borrower may at any time prepay the Notes or
any of them, in full or in part, provided, however, that any prepayment of
principal shall include accrued interest to the date of prepayment of the
principal amount being prepaid. Any prepayment shall be applied first to
satisfaction of any accrued and unpaid interest on the Note and the balance
shall be against the principal balance thereof.
2.5 GRANT OF SECURITY INTEREST. For value received and as collateral
security for the Line, Borrower hereby grants to Bank a security interest, lien
and mortgage in and to, and agrees and acknowledges that Bank has, and shall
continue to have, a security interest, lien and mortgage in and to, and assigns
to Bank its rights in, and all of Borrower's power to transfer title to those
assets and properties of Borrower of the types described below, wherever
located, however arising or created, and whether now owned or existing or
hereafter arising, created or acquired:
(A) Each promissory note or other evidence of indebtedness
("Mortgage Note(s)") now held or hereafter assigned to or
acquired by Borrower relating to any loan transferred to Bank
under Section 3.3 of this Agreement and all instruments and other
forms of payment, all general intangibles and accounts, and all
proceeds thereunder and therefrom (excepting servicing rights
with respect to the Mortgage Notes), and all books and records
relating to any of the above;
(B) All collateral, security, liens and security interests now or
hereafter held for each such Mortgage Note, including without
limitation, the beneficial interest in any related deed of trust
or mortgage and all guarantees thereof;
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(C) All present and future title insurance policies insuring any
of the deeds of trust or mortgages issued in connection with any
Mortgage Note;
(D) All present and future commitments of a Qualified Investor to
purchase a Mortgage Note or Mortgage Notes from Borrower as may
be assigned;
(E) All present and future rights of Borrower under contracts to
service Mortgage Notes and related deeds of trust for its own
account or for the account of third parties;
(F) Any and all present and future money and deposit accounts and
all other assets of Borrower in which Bank receives a security
interest or which hereafter come into the possession, custody or
control of Bank;
(G) All proceeds, instruments, general intangibles, property,
property rights, privileges and benefits arising out of, from the
enforcement of, or in connection with, the collateral described
in subparagraphs (A) through (F), above, {the "Collateral");
(H) All books, records, files, computer programs, data processing
records, computer software, documents and other information,
property, or general intangibles, at any time evidencing,
describing, or pertaining to the Collateral described or referred
to in subsections (A) through (G) above (the "Books and
Records"); and
(I) All products and proceeds (as defined in the UCC) of any of
the Collateral described above in any form, and all proceeds of
such proceeds, including, without limitation, all cash and credit
balances, all payments under any indemnity, warranty or guaranty
with respect to any of such property, all awards for taking by
eminent domain, all proceeds of fire or other insurance,
including any refunds of unearned premiums in connection with any
cancellation, adjustment, or termination of any insurance policy,
all proceeds obtained as a result of any legal action or
proceeding with respect to any of such property, and claims by
Borrower against third parties for loss or damage to, or
destruction of, any of such property.
2.6 REPAYMENT OF THE NOTE. Each Qualified Investor shall sign a
preapproved Bailee Flow Agreement acknowledging, inter alia, certain irrevocable
instructions whereby the Qualified Investor shall agree that all payments shall
be made directly to the Bank.
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SECTION 3
CONDITIONS PRECEDENT TO CREDIT ADVANCE
3.1 INITIAL CREDIT ADVANCE. Bank's obligation to make the initial
Advance hereunder is subject to the condition precedent that the Bank shall have
received on or before the day of such Advance each of the following, in form and
substance acceptable to the Bank:
(a) Delivery of Documents. Bank shall have received all of the
following in form and substance satisfactory to it:
(1) Loan Documents. The Borrower's Note drawn to the order of
Bank and any other documents evidencing the instant transaction that Bank
reasonably requests.
(2) Other Corporate Documents. Certified copies of those
resolutions of the Board of Directors of Borrower approving and authorizing the
execution, delivery and performance of this Agreement, the Note and all other
documents provided for herein and all other actions to be taken by Borrower in
connection herewith.
(3) Commissioner of Corporations Consent. The written consent
of the California Commissioner of Corporations to Borrower's pledge of
Collateral to secure the Note.
(4) Opinion of Counsel. The written opinion of counsel for
Borrower, acceptable to Bank, in form and substance satisfactory to Bank, to the
effect that:
(i) Borrower is duly incorporated and organized, validly
existing and in good standing under the laws of the State of New York without
limitation on the duration of its existence and is duly licensed or qualified as
a foreign corporation and is in good standing in the State of California and in
all other jurisdictions wherein the character of the property owned or the
nature of the business transacted makes such licensing or qualification
necessary.
(ii) Borrower is duly authorized under the law, its
Articles of Incorporation, and its By-Laws to execute and carry out this
Agreement, the Note, the pledge of Collateral to secure the Note and all other
documents provided for herein; the same have been duly authorized by all
necessary corporate action and either do not require the consent or approval of
such governmental body, agency or authority or the prior consent or approval of
any governmental
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body, agency or authority has been obtained by Borrower; and this Agreement, the
Note, the pledge of Collateral to secure the Note and all other documents
provided for herein when executed and delivered for value received, will
constitute the legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights of creditors generally.
(iii) There is no provision in Borrower's Articles of
Incorporation, By-Laws or preferred stock, nor any indenture, contract or
agreement to which Borrower is a party, nor any New York statute, rule or
regulation binding on Borrower, nor any judgment, order or decree of any court
or arbiter, which, to the knowledge of such counsel, would be contravened by the
execution and delivery of this Agreement, the Note, the pledge of Collateral to
secure the Note or any other documents provided for herein, or by the
performance of any term, provision or covenant of Borrower contained herein or
therein.
(c) Accuracy of Representations and Warranties. The representations
and warranties contained in Section 4 of this Agreement shall be true and
correct on and as of the date of the initial Advance.
(d) No Event of Default. No Default or Event of Default and no
event which, with the giving of notice or the lapse of time, or both, would
constitute an Event of Default shall have occurred and be continuing.
(e) Approval of Bank Counsel. All legal matters incident to, or in
connection with, the transactions hereby contemplated shall be reasonably
satisfactory to counsel for Bank.
(f) Evidence of Collateral. Bank shall have received the Collateral
and all documents necessary to perfect its security interest therein in form and
substance satisfactory to Bank in its sole discretion.
(g) Confirmation of Plan of Reorganization. In addition to all
other conditions herein referenced, the Credit Line shall not become operative
until there is an entry of an order confirming Borrower's First Amended and
Restated Plan of Reorganization, as such plan may be amended (the "Plan of
Reorganization"), filed with the United States Bankruptcy Court for the Southern
District of New York pursuant to applicable provisions of Chapter 11 of Title 11
of the United States Code (the "Bankruptcy Code") with regard to that certain
matter known as In re PIONEER COMMERCIAL FUNDING CORPORATION a/k/a PCFC of
California, Chapter 11 Case No. 90 B 20085 (HS) filed in the United States
Bankruptcy Court for the Southern District of New York and referred to
hereinafter as the "Chapter 11 Case".
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3.2 SUBSEQUENT ADVANCES. Bank's obligation to make any Advances other
than the initial Advance hereunder shall be subject to the fulfillment of the
following conditions precedent:
(a) Bank shall have received a written request from Borrower as
provided in Section 2.3 hereof; and
(b) Bank shall have received a certificate dated the date of such
credit extension, executed on behalf of Borrower by the President, Executive
Vice President or the Vice President and Secretary of Borrower advising that:
(i) The representations and warranties contained in Section 4
hereof are correct on and as of the date of such credit as though made on and as
of such date, other than those which specifically refer to an earlier date; and
(ii) No Default or Event of Default has occurred and is
continuing, or would result from such credit extension, and no event has
occurred which would constitute an Event of Default but for the requirement that
notice be given or that time elapse, or both.
(c) The Bank shall have received such other approvals, opinions, or
documents as the Bank may reasonably request.
3.3 ALL ADVANCES. Prior to or concurrently with the Bank making any
Advance hereunder, Borrower shall furnish to the Bank the following documents
pursuant to the Mortgage Warehouse Line:
(a) Mortgage application approved by the Bank.
(b) A complete mortgage warehouse package, including but not
limited to 1) a copy of the mortgage, 2) promissory note, 3) application, 4)
audit report, and 5) appraisal, all in compliance with FNMA/FHLMC requirements,
including, but not limited to, receipt by the Bank of the original promissory
note, endorsed in blank, a preliminary title report acceptable to the Bank,
issued by a title company that has been pre-approved by the Bank, and a
corporate assignment from the Borrower to the Bank of the Deed of Trust for the
respective mortgage (received by the Bank prior to disbursement).
(c) Mortgages will be from a mortgage banking company that has been
pre-approved by the Bank.
(d) Mortgages will conform to pre-approved written criteria that
may not be modified without the written consent of the Bank except that
mortgages shall at all times comply with FNMA/FHLMC requirements.
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(e) The Mortgage loan package(s) shall be received by the Bank no
later than 10:30 a.m. The Bank shall notify the Borrower by 5:00 p.m. of that
same business day whether the Mortgage funding requests have been accepted or
declined for funding.
(f) The Borrower shall pay to the Bank $50 plus out-of-pocket
expenses incurred to cover examination of each Mortgage package reviewed.
(g) The Borrower shall pay to the Bank $300 for each mortgage
company submitted to the Bank for approval.
SECTION 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
4.1 CORPORATE EXISTENCE. Borrower is a corporation duly organized and
validly existing under the laws of New York, is in good standing therein, is
duly licensed or qualified as a foreign corporation in the State of California
and in all other jurisdictions wherein the character of the property owned or
the nature of the business transacted by it makes licensing or qualification as
a foreign corporation necessary and is duly authorized, qualified and licensed
under all applicable laws, regulations, ordinances or orders of public
authorities to carry on its business in the places and in the manner presently
conducted. Borrower has the corporate power to execute and deliver this
Agreement, the Note, the pledge of Collateral to secure the Note and all other
documents related hereto, to obtain credit hereunder, and to perform the terms
and conditions hereof and thereof.
4.2 CORPORATE AUTHORIZATION. The execution, delivery and performance by
Borrower of the Loan Documents have been duly authorized by all necessary
corporate action and do not and will not (i) require any consent or approval of
Borrower's shareholders; (ii) contravene Borrower's charter or bylaws; (iii)
violate any provision of law, any effective Order in the Chapter 11 Case, rule,
regulation (including, without limitation, Regulation U of the Board of
Governors of the Federal Reserve System), order, writ, judgment, decree,
injunction, determination, or award presently in effect having applicability to
the Borrower; (iv) result in a breach of, or violation under any indenture, bank
loan, credit agreement, lease, instrument or agreement to which Borrower is a
party or to which any of Borrower's properties is subject; (v) result in, or
require, the creation or imposition of any lien, upon or with respect to any of
the properties now owned or hereafter acquired by the Borrower, other than liens
granted to the Bank; or (vi) cause the
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Borrower to be in default under any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination, or award or any such indenture,
agreement, lease or instrument.
4.3 FINANCIAL STATEMENTS. Financial statements of Borrower for its most
recent fiscal year, copies of which have heretofore been furnished to the Bank,
are complete and accurately and fairly represent the financial condition of
Borrower, the results of its operations and the transactions in its equity
accounts as of the dates and for the periods referred to therein, and have been
prepared in accordance with GAAP. There are no material liabilities, direct or
indirect, fixed or contingent, of Borrower as of the date of such financial
statements which are not reflected therein or in the notes thereto. There has
been no material adverse change in the financial condition or operation of
Borrower since the date of the balance sheet contained in such financial
statements.
4.4 ASSETS. Borrower has good and marketable title to all property and
assets reflected in the balance sheet referred to in Section 4.3 hereof, except
property and assets sold or otherwise disposed of in the ordinary course of
business subsequent to that date. There are no outstanding liens or encumbrances
on any properties or assets of Borrower, nor are there any security agreements
to which Borrower is a party, or title retention agreements, whether in the form
of leases or otherwise, of any personal property other than those reflected in
those financial statements referred to in Section 4.3 hereof or those permitted
under Section 6.2.
4.5 LITIGATION. Other than the Chapter 11 Case there are no actions,
suits, proceedings or investigations pending, or to the knowledge of Borrower
upon reasonable inquiry, threatened, against or affecting Borrower at law, in
equity, or before or by any governmental department, commission, board, bureau,
agency, or instrumentality, domestic or foreign which, if adversely determined,
would have a material adverse effect on the business or condition, financial or
otherwise, of Borrower and Borrower is not in default in any material respect
with respect to any order, writ, injunction, ruling, determination or decree of
any of the foregoing except as heretofore disclosed to the Bank in writing.
4.6 BURDENSOME PROVISIONS. Borrower is not a party to any indenture,
agreement, instrument or lease, or subject to any charter, by-law, or other
corporate restriction, or any law, rule, regulation, order, writ, judgment or
injunction, having a material adverse effect on the business, operations,
properties or assets of Borrower.
4.7 NO DEFAULT OF OTHER AGREEMENTS. Borrower is not in default in the
performance, observance or fulfillment of any obligation, covenant or condition
contained in any debenture, note or other evidence of indebtedness of Borrower
or in any indenture or agreement of Borrower.
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4.8 TAXES. Except as permitted pursuant to Section 5.6, Borrower has
filed all tax returns (federal, state and local) which are required to be filed
by Borrower and has paid or made adequate provision for the payment of all taxes
which have or may become due pursuant to said returns and pursuant to any
matters raised by audits or pursuant to any assessment received by Borrower or
for other causes known to Borrower, including, but not limited to, interest and
penalties, if any.
4.9 VALID AND BINDING OBLIGATIONS. This Agreement, the Note, the pledge
of Collateral to secure the Note and all other documents related hereto when
executed and delivered will constitute valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the rights of creditors generally. Borrower will
duly and punctually pay the principal and interest payable under the Note
according to the terms thereof and hereof.
4.10 REGULATION U. No part of the proceeds of Advances made hereunder
will be used to purchase or carry any margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System) or to
extend credit to others for the purpose of purchasing or carrying any margin
stock. Borrower is not engaged principally in or as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying any such margin stock. If requested by Bank, Borrower will furnish Bank
a statement in conformity with the requirements of Federal Reserve Form U-1.
4.11 ERISA. The Borrower is in compliance in all material respects with
all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited
Transaction has occurred and is continuing with respect to any Plan; no notice
of intent to terminate a Plan has been filed, nor has any Plan been terminated;
no circumstances exist which constitute grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administrate, a Plan, nor has the PBGC instituted any such proceedings; the
Borrower has not completely or partially withdrawn under Section 4201 or 4204 of
ERISA from a Multi-employer Plan; the Borrower has met its minimum funding
requirements under ERISA with respect to all of its Plans and the present value
of all vested benefits under each Plan exceeds the fair market value of all Plan
assets allocable to such benefits, as determined on the most recent valuation
date of the Plan and in accordance with the provisions of ERISA and the
regulations thereunder for calculating the potential liability of the Borrower
to the PBGC or the Plan under Title IV of ERISA; and the Borrower has not
incurred any liability to the PBGC under ERISA.
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4.12 OPERATION OF BUSINESS. The Borrower possesses all licenses,
permits, franchises, patents, copyrights, trademarks and trade names, or rights
thereto, to conduct its business substantially as now conducted and as presently
proposed to be conducted, and the Borrower is not in violation of any valid
rights of others with respect to any of the foregoing.
4.13 NO MISREPRESENTATION. No information, material or data supplied to
the Bank by the Borrower in connection with this Line includes any untrue
statement of a material fact, nor is a material fact omitted.
SECTION 5
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as credit shall remain
available hereunder, and until the full and final payment of any promissory note
made in favor of the Bank, unless Bank waives compliance in writing:
5.1 FINANCIAL INFORMATION. Borrower will deliver to Bank:
(a) Within ninety (90) days after the end of each of Borrower's
fiscal years, complete copies of its audit report, which report shall include at
least a balance sheet as of the close of each such fiscal year, a statement of
income and retained earnings for each such fiscal year, and a statement of cash
flow of Borrower for such fiscal year, all in reasonable detail and stating in
comparative form the respective figures for the corresponding date and period in
the prior fiscal year, as at the end of said fiscal year, together with the
report by a firm or firms of independent certified public accountants acceptable
to Bank. Such financial statements shall be prepared in accordance with GAAP and
shall fairly reflect the financial condition and operations of Borrower and
shall be accompanied by a certificate of said accountants, certified to the
Bank, to the effect that, in making the examination necessary for their audit of
the financial affairs of Borrower for such fiscal year, nothing has come to
their attention of any violation of any of the terms or provisions of this
Agreement or of the occurrence of any condition, event or act which, with or
without notice or lapse of time, or both, would constitute an Event of Default
or, if such accountants shall have obtained knowledge of any such violation,
condition, event or act, the nature and status thereof.
(b) As soon as such statements are available, but not later than
ninety (90) days after the end of each quarter, a copy of unaudited financial
statements of Borrower, including its balance sheets as of the close of such
quarter and its statement of income and retained earnings for such quarter and
for that part of the fiscal year ending with the last day of such quarter, all
in reasonable detail and
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all certified to by the Borrower's chief financial officer as having been
prepared in accordance with GAAP. Such financial statements shall be accompanied
by a certificate of said officer stating that he has no knowledge that an Event
of Default, or an event which, with notice or lapse of time or both, would
constitute an Event of Default, has occurred and is continuing or, if an Event
of Default or such event has occurred and is continuing, a statement as to the
nature thereof and the action which Borrower proposes to take with respect
thereto.
(c) Promptly, after sending or filing thereof, copies of any and
all proxy statements, financial statements and reports, if any, which Borrower
sends to its public stockholders and copies of all regular and periodic reports
and all registration statements which Borrower files with the Securities and
Exchange Commission;
(d) The Bank and its agents shall have the right, both prior to
closing and from time to time thereafter, at Borrower's expense, (i) to visit
and inspect Borrower's business premises, and the premises where Borrower's
assets and books and records are located and (ii) to conduct an audit of the
books and records of Borrower. The results of any such visit and inspection or
of any such audit shall be acceptable to the Bank in the Bank's sole discretion.
So long as the Borrower is not in default, Borrower's expense for the Bank's
audit shall be limited to $1,300.00 per annum. In the event that the Borrower is
in default, then the Borrower shall be liable for all of the Bank's expenses
incurred under this paragraph.
(e) Such additional information as Bank may from time to time
reasonably request with respect to the business affairs and financial condition
of Borrower.
5.2 Management/Performance Reports. Borrower shall provide all internal
reports within 10 days after the end of each month. These reports will consist
of, but not be limited to, a:
(a) trial balance segmented by mortgage company showing mortgagor's
name; address; city; date that Borrower funded the mortgage company; amount of
mortgage; amount advanced by Borrower; documentation fee; date of takeout
commitment; and the name and address of the respective investor.
(b) Commitment fail report segmented by mortgage company and
containing all information referenced in 5.2 (a) herein.
(c) Delinquency report referencing all mortgage companies that are
15 days or more past due in payment of interest. The report will indicate the
date of
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last contact; reason for tardiness; anticipated cure date; and what action has
been taken to avoid reoccurrence.
(d) Monthly trend reports of the prior 24 months of mortgage
company activity and performance indicating:
(i) the volume in both numbers and dollars and average dollars
per mortgage;
(ii) days late in payment of interest;
(iii) those mortgages which were not taken out ("Commitment
fails") as required; and
(iv) the number of mortgages declined and their aggregate
amount.
5.3 USE OF PROCEEDS OF THE REVOLVING CREDIT. Borrower will use the
proceeds of the Advances made by Bank to Borrower to support Borrower's Mortgage
Warehouse Line.
5.4 MAINTENANCE OF CORPORATE EXISTENCE. Borrower will remain in and
continue to operate substantially the same line of business it is presently
engaged in; maintain and preserve its corporate existence and all rights,
privileges and franchises necessary or desirable in the conduct of its business;
qualify and remain qualified as a foreign corporation in each jurisdiction in
which such qualification is required; and, conduct its business in an orderly,
efficient and customary manner.
5.5 MAINTENANCE OF PROPERTIES. Borrower will maintain, preserve and keep
all properties and assets (tangible and intangible) necessary or useful in its
business in good working order and condition, ordinary wear and tear excepted.
5.6 COMPLIANCE WITH LAWS. Borrower will comply with the requirements of
all applicable laws, rules, regulations and orders of any governmental
authority, including, but without limitation, any obligations imposed by ERISA,
non-compliance with which could adversely affect its business or credit, except
where contested in good faith and by appropriate proceedings.
5.7 TAXES AND CLAIMS. Borrower will pay and discharge promptly, all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and pay all lawful claims for labor,
materials and supplies that, if unpaid, might become a lien or charge upon its
property, provided that
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Borrower shall not be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently be
contested in good faith and by proper proceedings and if Borrower shall have set
aside on its books and shall maintain adequate reserves for the payment of the
same in conformity with GAAP.
5.8 INSURANCE. Borrower will obtain and maintain insurance with
financially sound and reputable insurance companies or associations in such
amounts and against such risks as are usually carried by companies engaged in
the same or a similar business and similarly situated, which insurance may
provide for reasonable deductibility but in no event be less than the amount of
the Line. Borrower shall furnish Bank on request full information as to the
insurance maintained by Borrower.
5.9 NOTICE OF DEFAULTS. Borrower will give prompt written notice to Bank
as soon as possible but in no event, within five (5) days, of any Event of
Default or of any event of default under any other agreement or indenture
entered into by Borrower or of any other matter which has resulted or might
result in a material adverse change in the condition, financial or otherwise, or
operations of Borrower.
5.10 CHANGES IN MANAGEMENT. Borrower will give prompt written notice to
Bank of any changes in the senior management of Borrower.
5.11 NOTICE OF LITIGATION. Borrower will notify the Bank Promptly after
the commencement thereof, notice of all actions, suits and proceedings before
any court or governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, affecting the Borrower, which, if
determined adversely to the Borrower, could have a material adverse effect on
the financial condition of the Borrower.
5.12 RIGHT OF INSPECTION OF RECORDS. Borrower will keep and maintain
full and accurate accounts and records of its operations according to GAAP and
permit Bank and its designated officers, employees, agents and representatives,
to have access to such accounts, records and operations and to make examinations
thereof at all reasonable times. The Bank may discuss the affairs, finances and
accounts of the Borrower with any of Borrower's employees, officers, directors
and the Borrower's independent accountants.
5.13 EXECUTION OF OTHER DOCUMENTS. Borrower will do, execute,
acknowledge and deliver, or cause to be done, executed, acknowledged and
delivered, all and every such further acts, covenants, assurances or further
instruments and documents as Bank may reasonably request in order to carry out
the intent and purpose hereof.
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5.14 DEPOSITORY ACCOUNT. During the term hereof, Borrower will maintain
a deposit or account with Bank.
SECTION 6
NEGATIVE COVENANTS
Borrower covenants and agrees that so long as the Bank has a Commitment
to the Borrower hereunder, and until the full and final payment of the Note,
unless Bank waives compliance in writing, Borrower will not:
6.1 CONSOLIDATION AND MERGER. Liquidate or dissolve or enter into any
consolidation, merger, partnership, joint venture, syndicate or other
combination, except that Borrower may be consolidated with or merged with any
other corporation, provided that in any such merger or consolidation. Borrower
shall be the surviving or resulting corporation and immediately after the
effectiveness of such merger or consolidation, there shall have occurred and be
continuing no Default or Event of Default.
6.2 LIENS. Create, incur, assume, or suffer to exist any Lien upon or
with respect to any of its properties, now owned or hereafter acquired, except:
(1) Liens in favor of the Bank;
(2) Liens for taxes or assessments or other government charges or
levies if not yet due and payable;
(3) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than thirty (30) days;
(4) Liens, deposits, or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement) public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;
(5) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use, and enjoyment by the Borrower of the property or assets
encumbered thereby in the normal course of its business or materially impair the
value of the property subject thereto; and
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(6) Liens (other than on the Collateral) to secure financing
described in Section 6.03(4).
6.03 DEBT. Create, incur, assume, or suffer to exist, any Debt, except:
(1) Debt of the Borrower under this Agreement or the Note;
(2) Debt of the Borrower subordinated on terms satisfactory to the
Bank to the Borrower's obligations under this Agreement and the Note;
(3) Accounts payable to trade creditors for goods or services which
are not aged more than ninety (90) days from the billing date and current
operating liabilities (other than for borrowed money) which are not more than 90
days past due, in each case incurred in the ordinary course of business and paid
within the specified time; and
(4) Additional financing obtained by the Borrower in order to
support its mortgage warehouse lending activity.
6.04 LEASES. Create, incur, assume, or suffer to exist, any obligation
as lessee for the rental or hire of any real or personal property, except leases
existing on the date of this Agreement and any extension or renewals thereof.
6.05 SALE AND LEASEBACK. Sell, transfer, or otherwise dispose of any
real or personal property to any Person and thereafter directly or indirectly
lease back the same or similar property.
6.06 DIVIDENDS. Declare or pay any dividends or purchase, redeem,
retire, or otherwise acquire for value any of its capital stock now or hereafter
outstanding; or make any distribution thereof to its stockholders as such
whether in cash, assets, or obligations of the Borrower; or allocate or
otherwise set apart any sum for the payment of any dividend or distribution on,
or for the purchase, redemption, or retirement of, any shares of its capital
stock; or make any other distribution by reduction of capital or otherwise in
respect to any shares of its capital stock except that: (i) the Borrower may
declare and deliver dividends and make distributions payable solely in common
stock of the Borrower; and (ii) the Borrower may purchase or otherwise acquire
shares of its capital stock by exchange for or out of the proceeds received from
a substantially concurrent issue of new shares of its capital stock.
6.07 SALE OF ASSETS. Sell, lease, assign, transfer, or otherwise dispose
of any of its now owned or hereafter acquired assets, receivables, and leasehold
interest, except: (i) for inventory, including mortgages, disposed of in the
ordinary
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course of business; and (ii) the sale or other disposition of assets no longer
used or useful in the conduct of its business.
6.08 INVESTMENTS. Make any loan or advance to any Person, (other than
loans constituting a part of its mortgage warehouse lending activities) or
purchase or otherwise acquire any capital stock, assets, obligations, or other
securities of, make any capital contribution to, or otherwise invest in or
acquire any interest in any Person except: (i) direct obligations of the United
States or any agency thereof with maturities of one year or less from the date
of acquisition; (ii) commercial paper of a domestic issue rated at least "A-1"
by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.;
{iii) certificates of deposit with maturities of one year or less from the date
of acquisition issued by any FDIC insured bank in an amount less than One
Hundred Thousand Dollars ($100,000.00); and (iv) for stock, obligations, or
securities received in settlement of debts (created in the ordinary course of
business) owing to the Borrower.
6.09 GUARANTIES. Assume, guarantee, endorse, or otherwise be or become
directly or contingently responsible or liable (including, but not limited to,
an agreement to purchase any obligation, stock, assets, goods, or services, or
to supply or advance any funds, assets, goods or to maintain or cause such
Person to maintain a minimum working capital or net worth, or services or
otherwise to assure the creditors of any Person against loss) for obligations of
any Person, except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of its
mortgage warehouse lending business.
6.10 TRANSACTION WITH AFFILIATE. Enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the rendering
of any service, with any Affiliate except in the ordinary course of and pursuant
to the reasonable requirements of the Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than would be obtained in a
comparable arm's length transaction with a Person not an Affiliate.
6.11 DEFAULT UNDER OTHER AGREEMENTS. Borrower will not commit or do, or
fail to commit or do, any act or thing which would constitute a breach of, or
default under, any of the terms or provisions of any other agreement or
indenture, contract, document or instrument executed or to be executed by
Borrower in connection with the borrowing of money and under which Borrower may
be obligated as borrower or guarantor, if such breach or default consists of the
failure to pay any indebtedness when due or if such breach or default caused the
acceleration of any indebtedness or requires that any such indebtedness be paid
prior to its stated maturity or due date or causes the termination of any
commitment to lend.
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SECTION 7
EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. If any one or more of the following events
(herein called "Events of Default") described herein shall occur for any reason
whatsoever (and whether the occurrence shall be voluntary or involuntary or come
about or to be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body), then Borrower shall be in default:
(a) Note. If Borrower shall default in the payment of principal of,
or interest on, the Note when the same shall become due and payable; or
(b) Misrepresentation. If any of the representations or warranties
made herein or in any certificate or financial or other statement heretofore or
hereafter furnished to Bank by or on behalf of Borrower in connection with this
Agreement or the extension of any credit hereunder shall be false or misleading
in any material respect at the time made; or
(c) Covenants. If Borrower shall fail to perform or observe any
other covenant, term, provision, condition, agreement or obligation of this
Agreement and such failure to perform or observe has a material adverse effect
on the collectability of the Advances; or
(d) Other Debts. If Borrower shall fail to perform or observe any
material covenant, term, provision, condition, agreement or obligation under any
other agreement, indenture, document, note or other instrument (including, but
not limited to the generality of the foregoing, other indebtedness owing to
Bank) executed or to be executed by Borrower, which failure shall entitle the
lender thereon to accelerate debt due under such agreement; or
(e) Insolvency. If Borrower shall become insolvent; or admit in
writing the inability to pay its debts as they mature; or fail generally to pay
debts as they become due; or make an assignment for the benefit of creditors of
commence a case for dissolution; or apply for or consent to the appointment of,
or taking possession by a trustee, liquidator, assignee, custodian, sequestrator
or receiver (or similar official) for the Borrower or for a substantial part of
the property or business of the Borrower; or shall take any corporate action in
furtherance of any of the foregoing; or
(f) Appointment. If a trustee, liquidator, assignee, custodian,
sequestrator or receiver (or similar official) shall be appointed for Borrower
or for a substantial part of the property or business of Borrower without the
consent of
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Borrower and shall not be discharged within thirty (30) calendar days after such
appointment; or
(g) Custody. If any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
Borrower and shall not be dismissed within thirty (30) calendar days thereafter;
or
(h) Liens. If any money judgment, writ or warrant of attachment, or
similar process shall be entered or filed against Borrower or any of the
properties or other assets of Borrower and shall remain unvacated, unbended, or
unstayed for a period of fifteen (15) calendar days; or
(i) Bankruptcy. If a bankruptcy, reorganization, insolvency, or
liquidation case or other case for relief under any bankruptcy law or any law
for the relief of debtors shall be commenced by or against Borrower and, if
instituted against Borrower, shall not be dismissed within thirty (30) calendar
days after such institution or Borrower shall by any action or answer approve
of, consent to, or acquiesce in any such case or admit the material allegations
of, or default in answering a petition filed in any such case; or
(j) Suspension of Business. If Borrower shall voluntarily or
involuntarily suspend the transaction of its business or a vital component of
its business, as presently conducted, for more than five (5) consecutive
Business Days;
(k) Material Adverse Change. If there shall be any material adverse
change from the present condition or affairs (financial or otherwise) of the
Borrower that in the Bank's reasonable opinion impairs its security or increases
its risk; or
(l) Validity Contest. If this Agreement, the Note, or any other
document related hereto shall, at any time while the Note shall remain unpaid,
cease to be in full force and effect or shall be declared null and void, or the
validity or enforceability thereof shall be contested by Borrower or Borrower
shall deny that it has any or further liability or obligation under this
Agreement, the Note, or any other documents related hereto.
SECTION 8
REMEDIES
8.1 REMEDIES. Upon the occurrence of any Event of Default or Default,
Bank's obligation to disburse any undisbursed portion of the Line shall
immediately cease; provided, however, that if such obligation has ceased due to
the occurrence of
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a Default or an Event of Default and such Default or Event of Default has been
cured or waived, then such obligation shall be reinstated as of the date such
Default or Event of Default is cured or waived. Upon the occurrence or existence
of any Default or Event of Default or at any time thereafter so long as such
Default or Event of Default is continuing, without prejudice to the rights of
Bank to enforce its claim against Borrower for damages for failure by Borrower
to fulfill any of its obligation hereunder or to bring suit against Borrower for
specific performance of this Agreement, Bank shall have all of the rights and
remedies described hereafter, inclusive, and it may exercise any one, more, or
all of such remedies, in its sole discretion, without thereby waiving any of the
others.
(a) Acceleration of the Line. Bank, at its option, may declare the
Line to be immediately due and payable, and in the event a voluntary or
involuntary case is commenced under the Bankruptcy Code by or against Borrower
as a debtor, the Line automatically will be due and payable without any notice
or declaration by Bank, whereupon the same shall become immediately due and
payable without presentment, demand, protest, notice of non-payment or any other
notice required by law relative thereto, all of which are hereby expressly
waived by Borrower, anything contained herein to the contrary notwithstanding
and, in connection therewith, the rate of interest charged on the Note then
outstanding shall automatically and without further notice increase to a rate
per annum equal to the Maximum Rate. If any Note of Borrower to Bank, shall be a
demand instrument however, the recitation of the right of Bank to declare any
and all amounts outstanding to be immediately due and payable, whether such
recitation is contained in such Note, or in this Agreement, as well as the
recitation of the above events permitting Bank to declare all amounts
outstanding due and payable, shall not constitute an election by Bank to waive
its right to demand payment under a demand at any time in any event, as Bank in
its discretion may deem appropriate. Thereafter, Bank, at its option, may, but
shall not be obligated to, accept less than the entire amount due, if tendered,
provided, however, that unless then agreed to in writing by Bank, no such
acceptance shall be deemed to constitute a waiver of any Default or a
reinstatement of any Commitment of Bank to Borrower hereunder.
(b) Remedies of a Secured Party. Bank shall have the rights and
remedies of a secured party under the UCC in effect on the date of the Event of
Default or Default (regardless of whether the same has been enacted in the
jurisdiction where the rights or remedies are asserted), including, without
limitation, the right to take the Collateral or any portion thereof into its
possession, by such means (without breach of the peace) and through agents or
otherwise as it may elect (and, in connection therewith, demand that the
Borrower assemble the Collateral at a place or places and in such manner as Bank
shall prescribe), and sell, lease or otherwise dispose of the Collateral or any
portion thereof in its then condition or following any commercially reasonably
preparation or processing, which disposition may be by public or private
proceedings, by one or more contracts,
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as a unit or in parcels, at any time and place and on any terms, so long as the
same are commercially reasonable. Bank may apply the proceeds of any such sale
or disposition to any of the amounts due and owing under the Line in such order
as Bank, in its sole discretion, may elect. Bank shall give Borrower written
notice of the time and place of any public sale of the Collateral or the time
after which any other intended disposition thereof is to be made, except where
the Collateral is perishable or threatens to decline speedily in value or is of
a type customarily sold on a recognized market. The requirement of sending
reasonable notice shall be met if such notice is given to Borrower at least five
(5) days before such disposition. Expenses of retaking, holding, insuring,
preserving, protecting, preparing for sale or selling or the like with respect
to the Collateral shall include, in any event, reasonable attorneys' fees and
other legally recoverable collection expenses, all of which shall constitute the
amount due and owing under the Line.
For the purposes of the preceding paragraph, the Bank may, so far
as the Borrower can give authority therefor, enter upon any or all of the
premises where any of the Collateral or books or records may be situated and
take possession and remove the same therefrom.
(c) Sole Determination. The Bank shall have the right in its sole
discretion to determine which rights, security liens, security interests or
remedies it shall at any time pursue, relinquish, subordinate, modify or take
any other action with respect thereto, without in any way modifying or affecting
any of them or any of the Bank's rights hereunder. Any moneys, deposits,
balances, or other property of Borrower which may come into the Bank's hands at
any time or in any manner, may be retained by the Bank and applied to any of the
indebtedness of Borrower to Bank.
(d) Rights and Remedies Cumulative. No right or remedy herein
conferred upon the Bank is intended to be exclusive of any other right or remedy
contained herein or in any other instrument or document delivered in connection
with or pursuant to this Agreement, and every such right or remedy shall be
cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity or
by statute, or otherwise.
(e) Rights and Remedies Not Waived. No course of dealing between
the Borrower and the Bank or any failure or delay on the part of the Bank in
exercising any rights or remedies hereunder shall operate as a waiver of any
rights or remedies of the Bank and no single or partial exercise of any rights
or remedies hereunder shall operate as a waiver or preclude the exercise of any
other rights or remedies hereunder.
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(f) Right of Setoff. Upon the occurrence and during the continuance
of any Event of Default, the Bank is hereby authorized at any time and from time
to time, without notice to the Borrower (any such notice being expressly waived
by the Borrower) to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by the Bank to or for the credit or the account of the Borrower
against any and all the obligations of the Borrower now or hereafter existing
under this Agreement or the Note or any other Loan Document, irrespective of
whether or not the Bank shall have made any demand under this Agreement or the
Note or such other Loan Document and although such obligations may be unmatured.
The Bank agrees promptly to notify the Borrower after any such setoff and
application, provided that the failure to give such notice shall not affect the
validity of such setoff and application. The rights of the Bank under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which the Bank may have.
(g) Cross Default. Upon the occurrence of an Event of Default under
the terms and conditions of the Line, said Event of Default or Default shall
also act as a default under the terms and conditions of any other loan made by
Bank to Borrower and upon the occurrence of a default or event of default under
the terms and conditions of any other loan made by Bank to Borrower, then such
default or event of default shall also act as an Event of Default hereunder.
Upon the happening of such event of default, or Event of Default, the entire
principal balance under the terms of the Line, and/or any other outstanding
loan, with all accrued interest thereon, shall become immediately due and
payable in full. This provision shall apply to any future modifications,
renewals and/or extensions hereof.
SECTION 9
MISCELLANEOUS PROVISIONS
9.1 NOTICES. Any notices, payments, requests, reports information or
demands which any party hereto may desire or may be required to give to any
other party shall be given or made upon such other party either through deposit
in the mails, by hand delivery or transmitted by facsimile (FAX) at its address
as follows:
Borrower:
PIONEER COMMERCIAL FUNDING CORP.
2500 Camino Diablo, Suite 210
Walnut Creek, California 94596
FAX NO: (510) 256-0703
Attn: Ted Reingold, Executive Vice President
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Bank:
UMB BANK AND TRUST COMPANY
10 Rockefeller Plaza
New York, NY 10021
FAX NO: (212) 459-0164
Attn: Christian M. Dahl, Vice President
or as to each party, at such other address as shall be designated by such party
in a written notice to such other party, complying as to delivery with the terms
of this Section. All such notices, requests, demands, directions and other
communications shall, when mailed, delivered or FAXed, be effective when
deposited in the mails or FAXed, respectively, addressed as aforesaid, except
that notices or requests to the Bank pursuant to Section 2.3 shall not be
effective until received by Bank.
9.2 WAIVER. Neither the failure of, nor any delay on the part of any
party hereto in exercising any right, power or privilege hereunder shall
preclude other or further exercise thereof, or the exercise of any right, power
or privilege; nor shall any waiver of any right, power, privilege or default
hereunder constitute a waiver of any other right, power, privilege or default or
constitute a waiver of any other default of the same or of any other term or
provision. No amendment or waiver of any provision of this Agreement or the Note
shall be effective unless contained in writing signed by Bank, and then such
shall only be effective in the specific instance and for the specific purpose
given. All rights and remedies herein provided are cumulative and not exclusive
of any rights or remedies otherwise provided by law.
9.3 BANKER'S LIEN OR SET OFF. Nothing in this Agreement shall be deemed
any waiver or prohibition of Bank's right of banker's lien or setoff.
9.4 EXPENSES OF BANK. The Borrower shall pay on demand all out-of-pocket
costs and expenses incurred in connection with the filing and recording of the
Loan Documents and Borrower shall also pay for all stamp and other taxes and
fees payable or determined to be payable in connection with the execution,
delivery, filing and recording of any of the Loan Documents and the other
documents to be delivered under any such Loan Documents, and agrees to save the
Bank harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes.
9.5 ASSIGNABILITY. This Agreement shall bind and the benefits thereof
shall inure to, Borrower and Bank and their respective successors and assigns,
as the case may be. Borrower may not assign this Agreement or any of the rights
of Borrower hereunder without the prior written consent of Bank.
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9.6 GOVERNING LAW. This Agreement, the Notes, and all other documents
executed pursuant to the provisions hereof shall all be deemed entered into in
the State of New York and shall be governed by and construed according to the
laws of the State of New York without giving effect to its conflict of law
principles.
9.7 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties with respect to the matters herein contained and, as such,
supersedes and cancels all prior understandings and agreements between the
parties.
9.8 HEADINGS. The headings hereinabove set forth are solely for the
purpose of identification and shall not be construed as a part of the paragraphs
they head.
9.9 AMENDMENTS. No amendment, modification, termination or waiver of any
provision of any Loan Document to which the Borrower is a party, nor consent to
any departure by the Borrower from any Loan Document to which it is a party,
shall in any event be effective unless the same shall be in writing and signed
by the Bank, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
9.10 SEVERABILITY OF PROVISIONS. Any provision of any Loan Document
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in any
other jurisdiction.
9.11 NUMBER - GENDER. As used herein, the singular shall include the
plural, the plural shall include the singular, and, masculine, feminine and
neuter pronouns shall be fully interchangeable,where the context so requires.
9.12 INCORPORATION. This Agreement specifically incorporates all such
terms and conditions contained in the Commitment letter executed by the parties.
If there is any conflict between the Agreement and the Commitment, this
Agreement shall be controlling. The Commitment shall be incorporated and become
one of the Loan Documents.
JURY TRIAL WAIVER
BORROWER AND BANK HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED
HEREIN, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, AND ANY
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AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS, (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF EACH PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK IN ENTERING
INTO THIS AGREEMENT. BORROWER FURTHER ACKNOWLEDGES THAT THIS JURY TRIAL WAIVER
PROVISION HAS BEEN EXPLAINED TO IT BY ITS COUNSEL AND THAT IT UNDERSTANDS AND
AGREES TO SAME.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto by their respective corporate officers thereunto duly authorized, all as
of the date first hereinabove written.
UMB BANK AND TRUST COMPANY PIONEER COMMERCIAL FUNDING
CORPORATION
_____________________________________ By:______________________________
CHRISTIAN M. DAHL, Vice President Title:
_____________________________________
LILLY COHEN, Assistant Vice President
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STATE OF NEW YORK
COUNTY OF NEW YORK
SWORN TO, SUBSCRIBED AND ACKNOWLEDGED before me this day
of 199_, by ______________________ as___________________________ of
PIONEER COMMERCIAL FUNDING CORP., a New York corporation, on behalf of said
corporation.
_________________________________
Notary Public, State of New York
My Commission Expires:
<PAGE>
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
SWORN TO, SUBSCRIBED AND ACKNOWLEDGED before me this day of
199_, by CHRISTIAN M. DAHL as Vice President of UMB Bank and Trust
Company, a New York chartered commercial bank, on behalf of said bank.
________________________________
Notary Public, State of New York
My Commission Expires:
<PAGE>
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
SWORN TO, SUBSCRIBED AND ACKNOWLEDGED before me this day of ,
199_, by LILLY COHEN as Assistant Vice President of ___________________________
corporation, on behalf of said corporation.
__________________________________
Notary Public, State of New York
My Commission Expires:
<PAGE>
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[Letterhead of United Mizrahi Bank and Trust Company]
February 21, 1996
Glenda S. Klein,
Senior Vice President
Pioneer Commercial Funding Corporation
6660 Reseda Blvd. Suite 108
Reseda, Ca. 91335
REFERENCE IS MADE TO THE REVOLVING LINE OF CREDIT AND SECURITY AGREEMENT
DATED AS OF MAY 25, 1993 ("THE REVOLVER") BETWEEN UMB BANK AND TRUST
COMPANY N/K/A UNITED MIZRAHI BANK AND TRUST COMPANY, "THE BANK" AND PIONEER
COMMERCIAL FUNDING CORPORATION "PCFC".
Dear Mrs. Klein:
The Bank has agreed to amend Section 2.1 of the Revolver by increasing the
principal amount of advances available by One million five hundred thousand
dollars ($1,500,000.00) to an aggregate amount not to exceed four million
dollars ($4,000,000.00). In consideration of the amendment, PCFC agrees to pay a
facility fee of one percent (1%), per annum on the increased amount which is
eight thousand ($8,000.00), which fee will be charged to PCFC's checking account
upon receipt of the signed copy of this letter.
Section 5.4 of the Revolver is hereby deleted. Section 5.4 will now state:
Borrower will remain in and continue to operate solely in the business of
warehousing of loans, which may include second mortgages and home improvement
loans under FHA/VA/HUD guidelines, provided that such loans do not exceed
borrowers thirty-five percent (35%) of borrower's capital; maintain and preserve
its corporate existence and all rights, privileges and franchises necessary or
desirable in the conduct of its business; qualify and remain qualified as a
foreign corporation in each jurisdiction in which such qualification is
required; and conduct its business in an orderly, efficient and customary
manner.
And PCFC also agrees, upon completion of its Initial Public Offering,
("I.P.O."), that it will issue to the Bank, Warrants for Common Stock, in an
amount equal to four point nine percent (4.9%), of the common stock issued and
outstanding at the time of the I.P.O. The exercise price of each warrant will be
five dollars and fifty cents per share ($5.50). Each year after the first year,
twenty-five percent (25%), of the warrants would be exercisable at the Bank's
discretion, however, in the event that the four
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Page 2 of 2
million dollar commitment is reduced or terminated any unexercised warrants in
the bank's possession would be reduced proportionately to the extent of the
reduced commitment.
All other terms and conditions of the Revolver shall remain in full force and
effect and none of the terms of the Revolver are or shall be deemed to amended,
modified or waived except by the express terms contained herein.
Very truly yours,
Lilly S. Cohen
Assistant Vice President
Christian M. Dahl
Vice President
Accepted and agreed to this day of February, 1996
Pioneer Commercial Funding Corporation
By:________________________________________
Glenda Klein, Senior Vice President
<PAGE>
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EMPLOYMENT AGREEMENT
Agreement dated as of the 1st day of April, 1995, between Pioneer
Commercial Funding Corp., a New York Corporation (the "Company") and Glenda
Klein (the "Executive").
W I T N E S S E T H
WHEREAS, the Executive has heretofore served as the Senior Vice
President and Chief Financial Officer of the Company; and
WHEREAS, the Company desires to formalize the terms and
conditions of the Executive's continued employment by the Company in the manner
hereinbelow provided,
NOW, THEREFORE, in consideration of the foregoing, and the mutual
terms, covenants and conditions hereinbelow set forth, it is agreed, as follows:
ARTICLE 1
Employment
Section 1.1 Employment of the Executive. Commencing on the date
first above-written (the "Commencement Date") and continuing through March 31,
1997, the Executive shall be engaged by the Company as Senior Vice President and
Chief Financial Officer, reporting to the Chief Executive of the Company. During
said period of employment, (a) the Executive shall devote substantially all of
her time and efforts to the Company's business, provided, however, that the
Executive may serve on a reasonable number of boards of directors, trade
associations and public service organizations, committees and commissions; and
(b) the Executive shall stand for election as a Director of the Company at the
annual meetings of shareholders held throughout the term of her service under
this Agreement.
ARTICLE 2
Compensation; Benefits
Section 2.1 Salary. In consideration of her services hereunder,
the Executive shall receive a base salary payable at the rate of $90,000 per
annum during the first year of the term of this Agreement, and $100,000 per
annum during the second year of such term, subject to such increases, but not
decreases therein, to be made from time to time during the term hereof as the
Board of Directors, or the Compensation Committee thereof, may deem appropriate.
The payment of such salary shall be made in twice monthly installments and shall
be subject to all applicable withholding obligations imposed upon the Company by
federal, state and local taxing authorities. The Board of Directors, or said
Committee, may in its discretion approve one or more bonuses to the Executive
based on performance or such other
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circumstances as the Board deems appropriate.
Section 2.2 Stock Options. In order to stimulate the efforts of
the Executive, strengthen her desire to remain with the Company and provide her
with a more direct interest in its welfare by encouraging and enabling the
Executive to acquire shares of the Company's $.01 par value common stock
("Common Stock"), the Company hereby agrees to grant to the Executive:
(a) an option to purchase 100,000 shares of Common Stock
during the five year period commencing on the Commencement Date at an exercise
price of $5.00 per share; and
(b) in the event that the Executive shall have been
continuously employed by the Company during the period commencing on the
Commencement Date and continuing through April 30, 1996, an option to purchase
50,000 shares of Common Stock during the five year period commencing on May 1,
1996 at an exercise price equal to the closing price of the Common Stock, as
quoted on April 30, 1996 on the principal market on which such shares shall then
be (or if no trading in the Common Stock shall have taken place on such date,
then on the next preceding date on which such trading shall have occurred). If
the Common Stock shall not then be registered under the Securities and Exchange
Act of 1934 and publicly traded on the Nasdaq Stock Market or any other
exchange, the exercise price for said option shall be determined by mutual
agreement between the Company's Board of Directors and the Executive.
(c) The above-described options shall not be "incentive
stock options," as such term is used in Section 422A of the Internal Revenue
Code of 1986, as amended. The option described in Section 2.2(a) hereof shall be
fully vested on the Commencement Date, and shall be exercisable at any time
during the term thereof, regardless of the Executive's employment status with
the Company on the date or dates of exercise thereof. The option described in
Section 2.2(b) hereof shall be fully vested on May 1, 1996, and shall be
exercisable at any time during the term thereof, regardless of the Executive's
employment status with the Company on the date or dates of exercise thereof. All
of the rights and obligations of the Company and the Executive with respect to
the issuance of shares of the Common Stock underlying each of said options shall
be, as set forth in the form of option annexed hereto as Exhibit A.
Section 2.3 Employee Benefits. The Company will provide the
Executive and her spouse during the term of this Agreement with health insurance
coverage (medical and vision) commensurate with the coverages presently provided
to the Executive through the plan currently in effect between the Company and
Kaiser Permanente/Kaiser Foundation Health Plan, Inc.
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Section 2.4 Vacation. The Executive shall be entitled to three
weeks of paid vacation during each year of the term of this Agreement. The
Executive shall coordinate her vacation plans so that she and the Company's
Chief Executive shall not be away from the Company at the same time.
Section 2.5 Executive Benefits.
(a) Life Insurance. The Company shall also acquire,
continue, renew and/or replace, as necessary, and shall pay all premiums due and
owing with respect to, one or more policies insuring the life of the Executive
in the aggregate amount of $750,000 during the first year of the term of this
Agreement, and $1,000,000 during the second year of such term. The proceeds of
such insurance shall be payable to the Executive's chosen beneficiary pursuant
to, and in satisfaction of the Company's obligations under, Section 5.3 hereof.
(b) Leased Automobile. In consideration of the Executive's
relinquishment of her right to take 11 weeks of accrued vacation, and in lieu of
her receipt of payment for such benefit, the Company shall lease an automobile
for the Executive's exclusive use during the term of this Agreement. The
obligation under such lease to be paid by the Company shall not exceed $800.00
per month, provided, however, that the Company shall be responsible for payment
for the insurance and maintenance of, and the consumption of fuel by, the
automobile.
Section 2.6 Expense Reimbursement. The Company shall pay or
reimburse the Executive for all reasonable expenses actually incurred by her in
performing the services to be rendered by her hereunder. Such
payment/reimbursement shall be made within a reasonably prompt time in
accordance with, and upon the Executive's compliance with, the Company's then
pertaining expense reimbursement policies and procedures.
ARTICLE 3
Proprietary Information
Section 3.1 Definitions. For purposes of this Agreement, the
following definitions shall apply:
(a) "Trade Secrets" shall mean all Software,
documentation, know-how, and information relating to the past, present, or
future business of the Company or any plans therefor, or relating to the past,
present, or future business of a third party or plans therefor which are
disclosed to the Company, which the Company does not disclose to third parties
without restrictions on use or further disclosure; provided, however, Trade
Secrets shall not include the general knowledge and experience of the Executive
obtained during the employment of the
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Executive by the Company.
(b) "Proprietary Information" shall mean Trade Secrets,
and any and all processes, methods, techniques, projects, developments, plans,
research data, financial data, personnel data, customer lists and supplier lists
created by or for the Company which is maintained in confidentiality and
disclosed only to other executives or employees of the Company on a need to know
basis.
(c) "Software" shall mean each of one or more standard
computer programs created in whole or in part by the Company and/or its
executives and employees or by anyone else as an "employee for hire" of the
Company (which each may consist of one or more modules or sub-programs),
together with the media upon which it resides, and all accompanying standard
documentation pertaining thereto, as well as all "derivative works" thereof,
i.e., any source code, object code, software instruction or set of software
instructions, or documentation, in human readable or machine readable form,
which is in whole or in part based upon, or derived from, Software.
Section 3.2 The Executive's Obligations Concerning Trade Secrets.
(a) During the term of this Agreement and at all times
thereafter, the Executive shall treat Trade Secrets on a confidential basis and
not disclose them to others without the prior written permission of the Company,
or use them for any purpose other than for the performance of services for the
Company.
(b) Trade Secrets are the Company's sole and exclusive
property and the Executive shall surrender to the Company possession of all
Trade Secrets in her possession upon any suspension or termination of her
employment. If after the suspension or termination of the Executive's employment
hereunder, she becomes aware of any Trade Secrets in her possession, she shall
promptly surrender possession thereof to the Company.
Section 3.3 The Executive's Obligations Applicable to All
Proprietary Information.
(a) During the term of this Agreement and at all times
thereafter, the Executive shall not disclose any Proprietary Information to
others outside the Company or use the same for any unauthorized purposes without
written approval by the Board of Directors of the Company, unless and until such
Proprietary Information has become public knowledge other than through its
unauthorized dissemination by the Executive.
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(b) The Executive agrees that all files, letters,
memoranda, reports, records, data, sketches, drawings, notebooks, program
Software diagrams, documentation, schematics and printouts in any tangible media
including, but not limited to, paper, photographs, computer disks and tapes and
other forms of human-readable and machine-readable media, containing Proprietary
Information, whether created by the Executive or others, which shall come into
the Executive's custody or possession, shall be and are the exclusive property
of the Company to be used by the Executive only in the performance of her duties
for the Company. All such tangible media or copies thereof and all other
tangible property of the Company in the Executive's custody or possession shall
be delivered to the Company, upon the earlier of (i) a request by the Company or
(ii) termination of the Executive's employment. After such delivery, the
Executive shall not retain any such tangible media or copies thereof or any such
other tangible property.
(c) The Executive agrees that her obligation not to
disclose or to use information, know-how and records of the types set forth in
Sections 3.3(a) and (b) above, and her obligation to return tangible media and
other tangible property, set forth in Section 3.3(b) above, also extends to such
types of information, know-how, records and tangible property of customers of
the Company or suppliers to the Company or other third parties who may have
disclosed or entrusted the same to the Company or to the Executive in the course
of the Company's business.
(d) The Executive shall provide the Company with all
information, documentation and assistance that it may request to perfect,
enforce, or defend the proprietary rights in or based on Trade Secrets. The
Company, in its sole discretion, shall determine the extent of the proprietary
rights, if any, to be protected. All such information, documentation and
assistance shall be provided at reasonable compensation to the Executive, if
provided after any suspension or termination of the Executive's employment.
ARTICLE 4
Competitive Activities
Section 4.1 During the term of her employment hereunder, the
Executive shall not:
(a) Perform any services, directly or indirectly, for any
person or entity competing, directly or indirectly, with the Company;
(b) Own, directly or indirectly, an interest (other than a
common stock ownership interest of not more than 5% of a corporation listed on a
national securities exchange or
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traded through NASDAQ) in any entity competing, directly or indirectly, with the
Company; and
(c) Compete, directly or indirectly, with any products or
services marketed or offered by the Company.
Section 4.2 During the one year period after any suspension or
termination of the Executive's employment with the Company, the Executive shall
not contact, directly or indirectly, any of the Company's customers with whom
she had contact during the last year of her employment hereunder for the purpose
of soliciting business.
ARTICLE 5
Termination of Agreement
Section 5.1 Events of Termination. The employment of the
Executive shall terminate prior to the end of the term of this Agreement under
any of the following circumstances.
(a) The death of the Executive.
(b) In the event that the Executive shall substantially
fail to perform her duties hereunder due to illness or other incapacity, and if
such illness or other incapacity shall continue for a period of six months, the
Company shall have the right, by notice sent to the Executive at her residence
of record with the Company, to terminate the Executive's employment hereunder as
of a date (not less than four months after the date of the sending of such
notice) to be specified in such notice.
(c) In the event of gross malfeasance, gross misconduct or
a felony conviction of the Executive, or for other similar good cause materially
detrimental to the Company, as determined by a court of competent jurisdiction,
the Company shall have the right, by notice thereof sent to the Executive at her
residence of record with the Company, to terminate the Executive's employment
hereunder "for cause" as of a date specified in such notice.
(d) In the event that the Executive resigns as the
Company's Senior Vice President and Chief Financial Officer.
(e) In the event that (i) a majority of the Company's
outstanding Common Stock is acquired by a third party; (ii) substantially all of
the Company's assets are acquired by a third party; or (iii) the Company is
merged with and into another entity, and in either of such events, such third
party or entity or the Executive elects to terminate her employment hereunder.
Section 5.2 The Executive's Entitlements Upon
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Termination - General.
(a) Except to the extent specifically provided for herein,
the Executive shall not be entitled to receive any severance pay or other form
of compensation upon termination of her employment hereunder.
(b) In the event that the Executive's employment hereunder
shall terminate pursuant to any of the provisions of Section 5.1 hereof, the
Executive (or her estate in the event of her death) shall be entitled to receive
all unpaid Compensation1 and bonuses which shall have accrued through the date
of termination.
Section 5.3 The Executive's Entitlements Upon Termination -
Death. In the event of termination of this Agreement due to the Executive's
death, the sole obligation which the Company shall owe to the Executive's estate
(or any other beneficiary of the Executive's choosing) shall be to pay or cause
to be paid the insurance benefits described in Section 2.5(a) hereof.
Section 5.4 The Executive's Entitlements Upon Termination Illness
or Incapacity. In the event of termination of this Agreement due to illness or
other incapacity, the Executive shall also receive severance pay equal to one
year's salary payable in the amount equivalent to her annual salary at the time
when the Company shall have sent to the Executive the notice specified in
Section 5.1(b) hereof. Unless otherwise agreed by the Company, such severance
shall be paid in the same manner as the Executive's salary would have been paid
to her during the course of the applicable period of time.
Section 5.5 The Executive's Entitlements Upon Termination Change
of Control. In the event that the Executive's employment shall terminate
pursuant to any of the provisions of Section 5.1(e) hereof, the Executive shall
be entitled to receive, in lieu of any benefit or provision made pursuant to any
other section or subsection of this Agreement: (a) all salary which otherwise
would be due to her during the remainder of the term of this Agreement pursuant
to Section 2.1 hereof, payable in the manner provided in such section; (b) all
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(1) i.e., the aggregate amount reportable by the Company on the Executive's IRS
W-2 form with respect to the salary and employee and executive benefits which he
would have received through the date on which termination or death occurs,
including all sums payable to the Executive for accrued but unused vacation
time, less all payments made during such year to him or for his benefit pursuant
to Section 2.1 hereof.
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benefits which otherwise would be due to her during the remainder of the term of
this Agreement pursuant to Sections 2.3 and 2.5 hereof, to be provided in the
manners provided in such sections; and (c) the sum of $100,000 which shall be
payable in a lump sum (less required tax withholdings) not later than 30 days
after the date of such termination. The provisions of this Section 5.5 shall
survive the termination of this Agreement, and shall be binding upon any third
party or entity which acquires a majority of the Company's outstanding Common
Stock or substantially all of its assets, or which is the surviving constituent
of a merger with the Company.
ARTICLE 6
Indemnification
Section 6.1 The Executive's Entitlements. Subject to any
limitations imposed by applicable law, the Certificate of Incorporation and/or
Bylaws of the Company, and until such time as the Company shall enter into a
separate indemnification agreement with the Executive, the Company will
indemnify and defend the Executive hereunder to the fullest extent permitted by
applicable law with respect to all claims for compensatory damages (but not
punitive damages or the expenses incurred by the Executive in defending against
such claims) alleged against the Executive in any action, suit or proceeding
commenced against her by reason of her status as a present or former officer,
director or employee of the Company, or any subsidiary or affiliate of the
Company, including actions brought by or in the right of the Company to procure
a judgment in its favor. The provisions of this Article shall survive the
termination of this Agreement.
ARTICLE 7
Litigation Expenses
Section 7.1 Payment by the Company. In the event the Executive
becomes a party to any litigation regarding any matter pertaining to this
Agreement, or any act of commission or omission alleged to have been made by the
Executive while employed by the Company, including actions brought by or in the
right of the Company to procure a judgment in its favor (each of which shall
hereinafter be referred to as a "Covered Proceeding"), the Executive shall have
the right to have her expenses, including, but not limited to all of her legal
fees in prosecuting or defending such proceeding, paid by the Company as such
expenses are incurred during the course of such Covered Proceeding. This right
shall be in addition to any other rights of indemnification the Executive may
have under the Certificate of Incorporation or Bylaws of the Company, or
pursuant to any Indemnity Agreement or to applicable law. The provisions of this
Article shall survive the termination of this Agreement.
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Section 7.2 Decision by the Company Not to Pay Expenses in
Advance. Anything herein or elsewhere contained to the contrary notwithstanding,
in the event that the Board of Directors determines in good faith, after
reviewing the facts available to it at the time of commencement of a Covered
Proceeding, that (a) there is a substantial likelihood that the claims alleged
against the Executive will be sustained on the merits; (b) the facts underlying
such claims would support a termination of this Agreement for cause pursuant to
Section 5.1(c) hereof; and (c) it would not, under such circumstances, be in the
best interest of the Company to pay the expenses incurred by the Executive
including, but not limited to all of her legal fees in prosecuting or defending
such proceeding, as such expenses are incurred, the Company shall give notice in
writing to the Executive of its determination and the facts upon which the same
shall be based (a "Determination"). In such event, unless and until the court
having jurisdiction over the Covered Proceeding (or another court of competent
jurisdiction), after reviewing the relevant facts and the reasons upon which the
Determination has been based, orders the Company to undertake to pay the
Executive's expenses, as the same are incurred, the provisions of Section 7.1
hereof shall not be deemed to apply to such Covered Proceeding.
ARTICLE 8
Miscellaneous
Section 8.1 Assignability. This Agreement shall not be assignable
by the Executive. This Agreement shall not be assignable by the Company without
the prior written consent of the Executive except to a corporation which is the
surviving entity in any merger involving the Company, or to a corporation which
acquires all or substantially all of the stock or assets of the Company.
Section 8.2 Notices. All notices, advices, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given to made on the next business day if delivered by facsimile
transmission, overnight courier or Express Mail, or on the tenth business day
after being mailed by first class, certified mail, postage prepaid, and properly
addressed as follows:
To the Company at:
c/o Manhattan Associates
150 East 52nd Street
New York, New York 10022
Attention: Mr. Arthur H. Goldberg
To the Executive at:
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20542 San Jose Street
Chatsworth, California 91311
or to such other address as either party may designate by notice given in
accordance with this Article.
Section 8.3 Benefit. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successor and assigns.
Section 8.4 Entire Agreement; Modification Waiver. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained herein and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties. No termination, modification
or amendment of this Agreement shall be binding, unless executed in writing by
the parties hereto. No waiver of any of the provisions of this Agreement shall
be deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver.
Section 8.5 Sections Headings. The section headings of this
Agreement are included for convenience only and shall not affect in any way the
construction of interpretation of any of the provisions hereof.
Section 8.6 Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York
without giving effect to its conflict of laws principles.
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Section 8.7 Severability. In the event that any one or more of
the provisions contained in this Agreement shall be determined to be invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in any other respect and the remaining
provisions of this Agreement shall not be in any way impaired.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Pioneer Commercial Funding Corp.
By:________________________________
Arthur H. Goldberg,
Chairman and Chief Executive
_________________________________
Glenda Klein
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STOCK PURCHASE AGREEMENT
AGREEMENT dated as of December 23, 1996, by and between Pioneer
Commercial Funding Corp. ("Pioneer"), a New York corporation having an office at
6660 Reseda Boulevard, Reseda, California 91335 and Trans Lending Corporation,
(the "Corporation"), a Delaware corporation having an office at 5081 North Dixie
Highway, Boca Raton, Florida 33431.
WHEREAS, Pioneer desires to purchase from the Corporation, pursuant to
the terms, and subject to the conditions hereinafter set forth, 500 shares of
the Corporation's Common Stock, par value $1.00 per share (the "Common Stock")
and 200 shares of the Corporation's non-voting, non-dividend paying preferred
stock, par value $1,000 per share (the "Preferred Stock"); and
WHEREAS, Pioneer and the Corporation desire to set forth agreements
concerning the manner in which the business of the Corporation will be managed
after Pioneer acquires such securities from the Corporation,
NOW, THEREFORE, in consideration of the premises and the mutual terms,
covenants and conditions hereinafter set forth, it is hereby agreed as follows:
ARTICLE 1
PURCHASE OF THE SECURITIES BY PIONEER
Section 1.1 Purchase of Securities. At the Closing to be held on the
Closing Date, Pioneer shall purchase from the Corporation 500 shares of Common
Stock (the "Common Shares") and 200 shares of Preferrred Stock (the "Preferred
Shares") in consideration for the payment to the Corporation of the sum of
$300,000 to be made by wire transfer to an account designated by the
Corporation, or by good, unendorsed certified check payable to the order of the
Corporation.
ARTICLE 2
REPRESENTATIONS OF THE PARTIES
Section 2.1 The Corporation's Representations.
(a) The Corporation (i) has been duly organized and is validly
existing as a corporation in good standing under the laws of the state of
Delaware, (ii) is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character
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of its operations requires such qualification or licensing, and (iii) has all
requisite corporate power and authority and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental
or similar matters) to own or lease its properties and conduct its business.
(b) The Corporation is not a party to or bound by any instrument,
agreement or other arrangement (other than this Agreement) providing for it to
issue any capital stock, rights, warrants, options or other securities.
Immediately prior to the Closing there shall be issued and outstanding 500
shares of Common Stockand none of the shares of Preferred Stock.
(c) Schedule A annexed hereto contains monthly cash flow
projections prepared by the Corporation with respect to its proposed operations
during the period from December 1996 - December 1997 (the "Projections"). The
Projections were prepared by the Corporation's management with all due diligence
based upon such management's experience and knowledge of the business of
assembling, packaging and selling automotive financing contracts to
institutional purchasers thereof. In accordance with the Projections, it is
anticipated that the Corporation will generate a cumulative loss from operations
of approximately $68,400 during the period December 1996 - February 1997, and
will thereafter generate positive cash flows from its operations.
(d) Kenneth Germain ("Germain"), the President of the Corporation, has
in excess of 15 years of experience in the automotive financing business.
(e) The Corporation has entered into agreements with the companies
identified on Schedule B annexed hereto, pursuant to which the Corporation has
been appointed to represent such companies in their respective capacities as
purchasers of automobile financing paper.
(f) At or prior to the Closing, the Corporation shall enter into an
employment agreement with Germain containing such terms and conditions as shall
be acceptable to the Chief Executive Officer of Pioneer.
Section 2.2 Pioneer's Representations.
(a) Pioneer is acquiring the Common Shares and the Preferred Shares
solely for its own account.
(b) Pioneer is an "accredited investor" (as that term is defined in
rule 501 of Regulation D under the Securities Act of 1933, as amended (the
"Act")).
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Pioneer acknowledges that it has been given the opportunity to ask questions and
receive satisfactory answers concerning this Agreement, the operations and
financial condition of the Corporation, and the accuracy of the information
provided by the Corporation to Pioneer.
(c) Pioneer has no intention of distributing or reselling the Common
Shares, the Preferred Shares or any part thereof, or interest therein, in any
transaction which would be in violation of the securities laws of the United
States of America or any state securities laws.
(d) Upon original issuance thereof, and until such time as the same is
no longer required under the applicable requirements of the Act, the
certificates evidencing Pioneer's ownership of the Common Shares and the
Preferred Shares (and all securities issued in exchange therefor or substitution
thereof) shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR
SUCH LAWS."
ARTICLE 3
CLOSING
Section 3.1 Date, Time and Place of Closing. The closing of the sale
of the Common Shares and Preferred Shares by the Corporation to Pioneer (the
"Closing") shall take place on December , 1996 (the "Closing Date") at 10:30
A.M. New York time, at the offices of the Corporation, or on such other date,
and at such other time and place as the parties may mutually agree upon.
Section 3.2 Conditions Precedent to Closing. At or prior to the
Closing, as conditions precedent to each party's obligation to consummate the
transactions contemplated hereby:
(a) Pioneer shall deliver to the Corporation a Secretary's
Certificate attesting to the passage and continuing effect of resolutions by the
Board of Directors of Pioneer authorizing Pioneer to execute this Agreement and
consummate the
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transactions contemplated hereby.
(b) The Corporation shall deliver to Pioneer:
(i) a good standing certificate issued by the Delaware
Department of State not earlier than 30 days prior to the Closing; and
(ii) a Secretary's Certificate attesting to the passage and
continuing effect of resolutions by the Board of Directors of the Corporation
authorizing the Corporation to execute this Agreement and consummate the
transactions contemplated hereby.
(c) The Corporation and Germain shall execute the employment
agreement described in Section 4.2 hereof.
(d) Germain and Pioneer shall execute that certain Non-Compete
Agreement of even date herewith.
(e) Alan Mann ("Mann") shall deliver to Germain an irrevocable
proxy authorizing Germain to vote all 250 shares of the Corporation's Common
Stock owned by Mann on any question coming before the Corporation's stockholders
at any meeting of stockholders or pursuant to any written consent of the
stockholders exeuted in lieu of a meeting. Such irrevocable proxy shall remain
in full force and effect on December 17, 1999 or on the date when Germain shall
sell, transfer (other than to immediate members of his family), assign, pledge,
hypotheccate or otherwise dispose of any of the shares of the Corporation's
Common Stock owned by him, whichever shall first occur.
Section 3.3 Deliveries to be Made at the Closing. At the Closing:
(a) Pioneer shall deliver to the Corporation payment of the funds
specified in Section 1.1 hereof in the manner provided therein.
(b) The Corporation shall deliver to Pioneer:
(i) a share certificate evidencing Pioneer's ownership of 500
fully paid and nonassessable shares of Common Stock; and
(ii) a share certificate evidencing Pioneer's ownership of
200 fully paid and nonassessable shares of Preferred Stock.
ARTICLE 4
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CONTROL; MANAGEMENT; OFFICER COMPENSATION
Section 4.1 Control. As long as Pioneer shall be a holder of Common
Stock:
(a) The Board of Directors of the Corporation shall consist of
three members.
(b) The Corporation shall cause all of the shareholders of the
Corporation other than Pioneer to vote all of their respective shares of Common
Stock in favor of the election of Arthur H. Goldberg ("Goldberg"), Elie Housman
("Housman") and Germain as directors of the Corporation.
(c) Pioneer shall vote all of its respective shares of Common
Stock in favor of the election of Goldberg, Housman and Germain as directors of
the Corporation.
(d) Pioneer shall cause Goldberg and Housman to vote in favor of
the appointment of Germain to serve as President of the Corporation.
Section 4.2 Compensation to be Paid to Germain. Commencing on the day
immediately following the Closing, and continuing until such time as the
Corporation's Board of Directors may decide otherwise, Germain shall receive an
annual base salary, in his capacity as President of the Corporation, in the
amount of $96,000, payable at the rate of $8,000 per month. Germain's total
compensation including his annual base salary, bonuses, dividends and other
distributions with respect to profits and all other compensatory payments of
every nature and description shall be in such amounts, and shall be paid as such
times as the Board shall determine. The rights, duties and obligations of
Germain and the Corporation in r espect of Germain's employment are set forth in
a written employment agreement between such parties of even date herewith.
Section 4.3 Control of Corporation's Operating Bank Account. The
Corporation shall maintain an operating bank account in such bank as the Board
of Directors shall determine. No checks drawn on such account, and no
withdrawals from said account, in excess of $1,500.00, shall be valid and
binding upon the Corporation unless effected by authority of Germain and either
Goldberg or Housman, in their respective capacities as officers of the
Corporation.
ARTICLE 5
REDEMPTION OF PREFERRED SHARES
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Section 6.1 Pioneer's Option. In the event that the cumulative loss from
operations generated by the Corporation at any time after the Closing equals or
exceeds the sum of $100,000, Pioneer shall thereupon have the option to sell all
of the Preferred Shares to the Corporation for the sum of $200,000 (the
"Option"). Such Option shall be exercisable at any time during the six month
period following Pioneer's receipt of financial statements from the Corporation
or its independent accountants evidencing the Corporation's cumulative loss from
operations in an amount equal to or in excess of $100,000. Pioneer's exercise of
such Option must be evidenced by a written notice thereof sent to the
Corporation. The Corporation shall purchase all of the Preferred Shares at a
closing to be held not more than 30 days after its receipt of such notice. At
such Option closing, upon receipt of the certificates evidencing Pioneer's
ownership of all of the Preferred Shares accompanied by a stock power executed
in blank, payment of said purchase price shall be made by wire transfer to an
account designated by Pioneer, or by delivery of a good, unendorsed certified or
bank check payable to Pioneer's order.
ARTICLE 6
MISCELLANEOUS PROVISIONS
Section 6.1 Endorsement on Share Certificate. The certificate or
certificates evidencing the shares of Common Stock and Preferred Stock issued by
the Corporation to any of the parties hereto shall, in addition to any other
legend required by law , have endorsed upon the face thereof the following
legend:
"THIS SHARE CERTIFICATE IS HELD SUBJECT TO THE TERMS OF
AN AGREEMENT DATED AS OF DECEMBER 18, 1996 MADE BY TRANS
LENDING CORPORATION AND PIONEER COMMERCIAL FUNDING CORP., A
COPY OF WHICH IS ON FILE AT THE OFFICE OF THIS CORPORATION."
Section 6.2 Term of Agreement. This Agreement shall remain in force
until terminated in writing by all of the shareholders then holding shares in
the Corporation, or upon the occurrence of any of the following events:
(a) the bankruptcy, receivership or dissolution of the
Corporation; or
(b) the effectuation of an assignment for the benefit of the
Corporation's creditors.
Section 6.3 Notices. All notices, offers, acceptances, waivers and other
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communications to any party under this Agreement shall be in writing and shall
be deemed to have been sufficiently given on the date of delivery thereof if
sent by hand, guaranteed overnight courier or facsimile transmission, or if
mailed, first class postage prepaid certified mail with return receipt
requested, to such addressee at its or his respective address first above
written, or to such other address as such addressee, by notice to all other
parties given in accordance with this section, may designate from time to time.
Section 6.4 Number and Gender. Wherever and whenever the context of any
provision of this Agreement so requires, the employment of a particular gender
term shall be deemed to include such other gender term as may be required, and
the use of a singular term shall be deemed to include the plural of same and
vice-versa, as the case may be.
Section 6.5 Benefit. This Agreement shall be binding upon and, subject
to the terms hereof, shall operate for the benefit of the parties and their
respective, successors and assigns.
Section 6.6 Modification and Amendment. This Agreement shall not be
modified or amended unless such modification or Amendment is evidenced by a
writing executed by all of the shareholders then holding shares in the
Corporation. This Agreement supersedes all other agreements and understandings
heretofore or now existing between the parties hereto.
Section 6.7 Counterparts. This Agreement may be executed in several
counterparts, each of which when so executed and delivered, shall be considered
an original Agreement, but all of which together shall constitute but one
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Pioneer Commercial Funding Corp.
By:______________________________________
Arthur H. Goldberg, Chief Executive
Officer
Trans Lending Corporation
By:______________________________________
Kenneth Germain, President
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NON-COMPETE AGREEMENT
NON-COMPETE AGREEMENT dated as of December 23, 1996, between Pioneer
Commercial Funding Corp. (the "Company"), a New York corporation having an
office at 6660 Reseda Boulevard, Reseda, California 91335, and Kenneth Germain,
having an office at 5081 North Dixie Highway, Boca Raton, Florida 33431 (the
"Stockholder").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Company is acquiring (the "Acquisition") a 50% common stock
ownership interest in Trans Lending Corporation, a Delaware corporation ("Trans
Lending"); and
WHEREAS, the Acquisition is being made pursuant to the Stock Purchase
Agreement dated as of December 23, 1996, between the Company and Trans Lending
(the "Stock Purchase Agreement"); and
WHEREAS, immediately prior to the Acquisition, the Stockholder will own
a 50% common stock ownership interest in Trans Lending, and immediately after
the Acquisition, the Stockholder will own a 25% common stock ownership interest
in Trans Lending; and
WHEREAS, this Agreement is being entered into pursuant to the Stock
Purchase Agreement in connection with the Acquisition, and the execution and
delivery of this Agreement is a condition precedent to the consummation of the
Acquisition,
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound, the parties hereto agree as follows:
1. Covenant Not to Compete.
(a) In order to induce the Company to consummate the Acquisition,
and in consideration therefor, the Stockholder hereby covenants and agrees that,
subject to the time limitations set forth in paragraph 1(b) below, the
Stockholder, will not, directly or indirectly, during the term of this
Agreement, for himself, or as agent of or on behalf of, or in conjunction with,
any person, firm, corporation or other entity (other than on behalf of Trans
Lending), (i) engage or participate in or become employed by or render advisory
or other services, directly or indirectly, to or for any person, firm,
corporation, partnership, joint venture or other entity which is principally
engaged in the businesses of purchasing purchasing used vehicle loans made to,
or used vehicle leases made with, individuals who are deemed to be
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relatively high credit risks ("non-prime credit individuals") by the new and/or
used vehicle dealerships (the "Suppliers") who make such loans and leases
available for purchase by Trans Lending or its Customers (as such term is
hereinafter defined), and/or representing in any capacity any of the customers
of Trans Lending, i.e., the banks, insurance companies, stock brokerage firms
and other financial institutions and other entities (all of whom are
collectively referred to as "Customers") in connection with such Customers'
purchases of used vehicle loans made to, or used vehicle leases made with,
non-prime credit individuals (any of the above-described activities being
hereinafter referred to as a "Competitive Business"), (ii) invest or otherwise
have an interest in or become interested in, as a principal, partner, officer,
director, Stockholder, agent, joint venturer, creditor, guarantor, surety,
investor or otherwise, any such person, firm, corporation, partnership, joint
venture or other entity principally engaged in a Competitive Business, or (iii)
take any action with respect to the Customers who purchase used vehicle loans
made to, or used vehicle leases made with, non-prime credit individuals, and the
Suppliers who provide such loans and leases to Trans Lending which can
reasonably be expected to adversely affect the relationship of Trans Lending
with any of such Customers or Suppliers.
(b) The provisions of paragraph 1(a) above shall be subject to
the following time limitations:
(i) In the event of a Termination for Cause (as defined in
the Employment Agreement dated as of December 23, 1996, between
Trans Lending and the Stockholder (the "Employment Agreement")),
for a three (3) year period commencing on the date of termination
of the Stockholder's employment with Trans Lending (the
"Termination Date");
(ii) In the event of a Voluntary Termination (as defined
in the Employment Agreement), for a three (3) year period
commencing on the Termination Date;
(iii) In the event of a Termination Without Cause (as
defined in the Employment Agreement) (as used herein, such term
shall not include the non-renewal or expiration of the Employment
Agreement), for a two (2) year period commencing on the
Termination Date; or
(iv) In the event of the non-renewal or expiration of the
Employment Agreement, for a one (1) year period commencing on the
expiration of the Employment Agreement;
provided, however, the provisions of paragraph 1(a) hereof shall not be
enforceable
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against the Stockholder unless the Company or Trans Lending shall continue to
pay the Stockholder the the Stockholder's Gross Compensation(1) during whichever
of the foregoing periods of time may be applicable.
(c) The limitations imposed upon the Stockholder pursuant to
paragraph 1(a) hereof shall be applicable in Dade and Broward Counties in the
State of Florida, New York County in the State of New York, Los Angeles County
in the State of California, and at the specific street addresses located
elsewhere in the United States whereat Trans Lending's Customers and Suppliers
are located.
(d) Notwithstanding anything to the contrary contained herein,
the Stockholder may own up to 1% of the capital stock of any entity engaged in
any Competitive Business that is publicly traded on a U.S. national stock
exchange or quotation system (provided that the Stockholder does not control,
directly or indirectly, through one or more entities or groups (whether formal
or informal), the voting or disposition of greater than 1% of the aggregate
beneficial ownership interest of any such entity).
(e) The Stockholder understands that the foregoing restrictions
may limit his ability to earn a livelihood in a business similar to the business
of Trans Lending, but he nevertheless believes that he has received and will
receive sufficient consideration and other benefits pursuant to this Agreement
and the Stock Purchase Agreement and the agreements executed in connection
therewith to clearly justify such restrictions which, in any event (given his
education, skills and ability), the Stockholder does not believe would prevent
him from earning a living.
2. Non-Solicitation. For a period commencing on the date hereof through
and including the third anniversary of the termination or expiration of the
Stockholder's employment with Trans Lending (the "Non-Solicitation Period"), the
Stockholder shall not:
(a) directly or indirectly, in one or a series of transactions,
recruit, solicit or otherwise induce or influence any corporation, partnership,
joint venture or other entity or enterprise, proprietor, partner, Stockholder,
lender, director, officer, employee, consultant, sales agent, joint venturer,
investor, lessor, client (including any prospective client), customer, supplier,
agent, representative or any
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1 Gross Compensation shall mean the aggregate of (i) the annual base
salary which was being paid to the Stockholder immediately prior to the
termination of his employment; and (ii) all bonuses which had accrued to
the Stockholder (whether paid or unpaid) between January 1 of the year in
which his employment shall have terminated and the date immediately preceding
such termination.
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other person which has a business relationship with Trans Lending at any time
during the Non-Solicitation Period, to discontinue, reduce or modify such
employment, agency or business relationship with Trans Lending; or
(b) employ or seek to employ or cause any business to employ any
person who at any time during the Non-Solicitation Period is or was employed or
retained by Trans Lending.
3. Confidential Information. The Stockholder acknowledges that Trans
Lending would be irreparably damaged if any confidential or proprietary
information relating to Trans Lending or the Company or any of their respective
business activities were disclosed to or utilized on behalf of others in a
Competitive Business. Accordingly, except as required by law or in any
litigation or similar proceeding (in which event, the Stockholder shall provide
the Company with prompt notice of such requirement prior to making any such
disclosure, so that the Company may seek an appropriate protective order, or
otherwise cooperate with the Company in making such disclosure), the Stockholder
shall not disclose and shall keep confidential any non-public or proprietary
information relating to Trans Lending or the Company or any of their respective
businesses to any person or entity, nor shall he make use of any such
confidential or proprietary information for the benefit of any person or entity
involved in a Competitive Business. For the purpose of this Section, the term
"confidential or proprietary information" means all information which is known
to the Stockholder and relates to Trans Lending or the Company or any of their
respective businesses and their respective trade secrets, books and records,
financial information and condition, suppliers, customers, marketing and pricing
information, and all other non-public information relating to Trans Lending or
the Company or any of their respective businesses.
4. Severability; Extraordinary Relief: Damages.
(a) It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated to be invalid or unenforceable, such provision
shall be deemed amended to reduce the scope of the portion thus adjudicated to
be invalid or unenforceable or delete such portion from such provision, such
reduction or deletion to apply only with respect to the operation of such
provision of this Agreement in the particular jurisdiction in which such
adjudication is made and enforced thereafter.
(b) The Stockholder acknowledges and understands that the
provisions of this Agreement are of a special and unique nature, the loss of
which cannot adequately be compensated for in damages by an action at law and
that the breach of the provisions of this Agreement would cause Trans Lending or
the
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Company irreparable harm. In the event of a breach or threatened breach by
the Stockholder of any provision of this Agreement, Trans Lending or the Company
shall be entitled to an injunction restraining him from such actual or
threatened breach. Nothing contained herein shall be construed as prohibiting
Trans Lending or the Company from pursuing any other remedies (including,
without limitation, an action for damages) available for such actual or
threatened breach of this Agreement, and the pursuit of an injunction or any
other remedy shall not be deemed to be an exclusive election of such remedy. The
Stockholder shall reimburse Trans Lending or the Company for all costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) incurred in connection with the enforcement of this Agreement.
5. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter contained in this
Agreement and supersede all prior agreements or understandings with respect
thereto.
6. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
7. Notices. All notices, claims, requests, demands and other
communication hereunder shall be in writing and sent by facsimile transmission
or by a nationally-recognized overnight courier, delivered personally, or mailed
(by registered or certified mail, return receipt requested and postage prepaid)
as follows:
if to the Stockholder, to:
Kenneth Germain
2190 Sunderland Avenue
Wellington, Florida 33414
Fax. No. 561-[ ]
with a copy to:
David J. Bartone, Esq.
1450 G Street, N.W.
Washington, D.C. 20005-5717
Fax No. 202-824-8133
if to the Company, to:
Pioneer Commercial Funding Corp.
6660 Reseda Boulevard
Reseda, California 91335
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Fax: (818) 776-0056
Attention: Arthur H. Goldberg
with a copy to:
Hall Dickler Kent Friedman & Wood LLP
909 Third Avenue, 27th Floor
New York, New York 10022
Fax: (212) 935-3121
Attention: Steven D. Dreyer
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (a), in the case
of personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, (c) in the case of international overnight courier, upon receipt of
confirmation of delivery, (d) in the case of telecopy transmission, when
received and (e) in the case of mailing, on the third business day following
posting.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York, without giving effect to
principles governing conflicts of laws.
9. Benefits of Agreement: Assignment. The terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties and its
heirs, personal representatives, executors, successors and permitted assigns.
This Agreement shall not be assignable by the Stockholder without the consent of
the Company. The provisions of this Agreement shall inure to the benefit of each
affiliate and subsidiary of the Company and each successor of the Company,
whether by merger, consolidation, transfer of all or substantially all of its
assets or otherwise.
10. Modification. This Agreement shall not be altered or otherwise
amended except pursuant to an instrument in writing signed by each party.
11. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be an original instrument, but all
such counterparts together shall constitute but one agreement.
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12. Waivers. The waiver by any party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the
date first written above.
PIONEER COMMERCIAL FUNDING CORP.
By:_______________________________________
Arthur H. Goldberg,
Chairman and Chief Executive
________________________________________
Kenneth Germain
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